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glauster

08:15AM | 12/23/05
Member Since: 11/15/05
70 lifetime posts
Bvrealestate


Could someone please tell me (a 30-year loan) what the effect will be of making 1, 2 or 3 extra payments on a home/mortgage loan per year?

When extra payment is made, does one pay both P&I or just the P portion?

Billhart

09:17AM | 12/24/05
Member Since: 04/25/05
1918 lifetime posts
Mortgage interest is calculated each month on the amount of the outstanding balance at that time.

Then for any payments the amount of interest is deducted from the payment and the remainder is used to reduce the principle.

Then the next month the principle will be lower and thus the amount of instrest is lower and more the payment goes towards the principle.

If you pay extra then there is that much more money that goes towards reducing the princple and greatly accelerates the time when the mortgage is paid off.

You can find any number of mortgage interest calculators online that should allow you to play with different combinations to see the affect.


eqfsteve

01:31PM | 04/21/08
Member Since: 04/11/08
2 lifetime posts
1 month extra takes @ 8 yrs off a 30 yr mtg.

Steve Verrier

Dulcinea9

10:40AM | 05/12/11
Member Since: 05/12/11
2 lifetime posts
I'm sure the OP has already decided what to do, but in case anyone else is reading this, I'm posting this reply.

An additional 1 month mortgage payment applied to the principal DOES NOT take 8 yrs off a 30 year mortgage. Use any of the online mortgage calculators (like this one: http://www.hsh.com/calc-amort.html ) to see the effect based on your specific mortgage and when you are making the extra payment. In the test I ran, with a 350,000 original mortgage and an additional $1987 payment right at the 5-yr mark, this took 3 months and $5830 off the 30-year mortgage. [Steve, whoever you are, I hope your signature doesn't mean you are in finance ... or maybe I should get my mortgage from you & make a few extra payments!]

Whatever you do, make sure you check with your lender BEFORE you make the additional payment. You should be very clear about how you want the additional payment applied. Unless you specify (& it's allowed under your mortgage rules) you may just end up prepaying an additional "regular" month. If it doesn't save you time & money, you may be better off investing that extra cash.
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