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? re: interest & paying extra on mortgage principal

2K views 16 replies 9 participants last post by  itlw8 
#1 ·
I've been putting a few thousand extra per month towards my mortgage principal and I'm way ahead of schedule. I double check my statements to make sure the extra is applied to principal, and it is, but the interest portion of the payment doesn't seem to go down.

Do I need to ask the mortgage company to reamoritize the loan in order to see the interest savings or will it kick in at the end? I just want to make sure I'm saving as much as possible in interest because I should have the loan paid off about 15 years early.

I'm sorry if this is a stupid question. I tried to Google it, to no avail.
 
#4 ·
Ours just adjusts automatically. I'm not sure every loan works the same. I would call or get online and get a copy of your current amortarization (sp) schedule.It should list your current payments (as your suppose to make them) from here on out with a breakdown of principal and intrest and a balance after you pay that for each payment. Then after you make your next extra payment skip down to the intrest payment after the balance you've actually paid and see if it matches what they say you're next intrest payment is. If it doesn't I'd call and ask why not.

hmmm...hope that makes sense. It seems pretty clear to me but then I know what I'm trying to explain. It might be as clear as nud to someone else. Let me know if it's murky and I'll try to do better.
 
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#7 ·
It should be going down every month. Are you positive you don't have some type of prepayment penalty on your note? Does your interest go down the following month ? For instance, you are charged interest based on your balance for this month, and you pay an extra $2000 on principle. But your interest for this month won't change because it's already due. Now next month you should see less interest because it's based on less principle. Does that make sense?
 
#10 ·
It *should* work like that...from Muse's post it sounds like they're screwing around with payment dates instead of principal adjustments.
 
#9 ·
I've been putting a few thousand extra per month towards my mortgage principal and I'm way ahead of schedule.
Hmm. You mean your statement says things like "your next payment is due in 2011"? (Ok probably not that extreme...)

What *kind* of mortgage do you have? And from each statement month to month, what is the principal balance showing? Is this one of those nasty sub prime mortgages? Who is it with?

You may have a battle with your mortgage company ahead - if you told them to apply the extra to principal and they didn't, you're gonna have to push them.
 
#13 · (Edited)
Hmm. You mean your statement says things like "your next payment is due in 2011"? (Ok probably not that extreme...)

What *kind* of mortgage do you have? And from each statement month to month, what is the principal balance showing? Is this one of those nasty sub prime mortgages? Who is it with?
My next payment is still due in a month. By "way ahead of schedule" I meant that it's supposed to be paid off in 2025, but I should have it paid off in 2011.

I have a 20 year fixed at 5.75%. The principal is showing correctly on the statement.

I called the mortgage company (Citimortgage) and they said the interest is reducing appropriately. I guess with my aggressive payment plan, I was expecting to see more than a $20-$30 drop in the interest portion each month. I'm averaging $5K - $7K additional per month on principal. Maybe it'll be more impressive when the principal gets paid down a little more.

Do you know how to figure interest so I can double check what they're telling me?
 
#12 ·
no advise, but wow that is awesome paying off so much extra on your mortgage :)
 
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#16 ·
Your interest payment for a particular month will be:
P - Current principal balance
I - Interest rate for the year
$(I) - Interest portion of the payment

$(I) = (I/12) * P

So if you owe 100,000 and the interest rate is 6% (0.06) then you divide .06 by 12, which is 0.005, and multiply that by 100,000.
(.06/12) * 100,000 = $500

If your payment was $600, then $500 went to interest and the last $100 went to principle, so next month you owe $99,900...
99,900 * .005 = $499.50

As you can see, every $100 taken off of principal at 6% = $0.50 less interest the next month. That means it takes a principal reduction of $200 to reduce your interest payment by $1.00.

It's slow going, but worth it!
 
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#17 ·
I can pull up my amoritization schedule online. for every $100 I pay extra each month it take one payment off the end of my loan so I know I saved about $300 in interest by doing that.


So in a way yes it does come off in the end as every months extra principal you pay cuts one months payment off the end.

That is why when you do it early in the loan it makes the most difference.
Later I will have to pay an extra $300 to save $100 interest.

Being able to see that online made the biggest difference for me to pay extra I can SEE what is happening. I have now cut 3 years off my 30 yr mortage
 
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