If i pay down my mortgage principal, dows the monthly payment change at all? I know the payment amount stays the same but will they redirect less of monthly payment towards interest payments because I will owe less interest over thirty years? Feels difficult to explain this question clearly but i hope you understand me For example let's say 2000 every month goes towards principal while 3000 goes towards interest. If i pay down the overall principal, will my monthly payment be distributed differently? For example 2250 goes toward principal and 2750 towards interest
No, you’ll just pay off your loan faster.
Yes, more goes toward principal which means the loan pays off faster. A good rule of thumb is, If your additional payment matches your current month principal, one month drops off the tail end of your mortgage payments
There are 2 answers: 1. Some lenders allow you to pay more principal in advance and recalculate interest and reduce the monthly pay accordingly. Chase lets me do this once a year for free so it's worth saving up and making one large payment towards principal. If I want multiple such payments they will charge a fee for each. 2. Make extra principal payments any time with no fees but the monthly payment stays the same and has to be paid every month. In this case you shorten the mortgage time. I guess it's intuitive to plot the principal and interest over the liftime of the loan and imagine each extra principal payment brings the end of the loan closer with that amount until it meets the monthly payments and then you're done.
I have never heard of 1 as an option. Was this on an ARM? Or fixed?
Yes, the total amount of mortgage per month decreases. However total time to pay off does not [ for example 30 years fixed], Unless you pay off all your principal.
Not true. Payment remains the same, but the length of the loan decreases as you make more principal payments.
This is wrong. Maybe you have a special mortgage but it hasn’t work that way on any of my 10 mortgages
What you’re asking is called amortization. Look up an amortization calculation online, and it will show you what impact this will have on principal over time
If you pay off a certain % off your principal, you might be able to request your lender to recast your loan amortization schedule.
This to true, but rare. Less likely in an increasing rate environment.
This is “rare” because lenders don’t like to talk about this. This is very powerful tool if you want to optimize for monthly cash flow, particularly if you are a landlord and have multiple properties or are planning to take out a loan for an additional new property.
You can build your own amortization schedule in excel using ipmt ppmt and pmt functions
Pay minimum payment and invest the rest.
One downside if I pay down principal faster is that there will be less mortgage interest to write off, but more going into my principal
Think about mortgage interest write off as “you give banker $10000” and Uncle Sam says “ok, you don’t have to pay taxes on that” But you are out do $10000!!! Would t you rather keep it, pay you 40% tax and still have extra $6000 in you pocket to spend?
You likely have a low interest rate. Compare your interest rate to the returns of s&p500. Also compare the annual gains you have made from your house raising in value. Likely the gains are covering your interest plus more. So pay minimum, invest the rest.
Yes. Payment stays the same but fraction going to principal increases as less interest is due.
Thanks!
Most mortgage companies will let you look at the amortization schedule which shows month to month how much principal and interest you are paying. You can see the effect of putting in extra principal.