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#1
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Extra principal won't reduce mortgage payments
Extra principal won't reduce mortgage payments
Dear Dr. Don, Once a mortgage is set up and I decide to pay extra on the principal, should my actual monthly payments go down? Thanks, -- Tom Treatment Dear Tom, Additional principal payments on a conventional fixed-rate mortgage reduce the principal balance but don't reduce the required monthly payment. A conventional mortgage is self-amortizing, meaning the monthly payment covers both the interest expense and the repayment of principal. Each monthly payment is split into two component parts, interest expense and principal repayment. Additional principal payments change the dollar amounts going toward principal and interest in subsequent mortgage payments, because lowering the outstanding loan balance reduces the monthly interest expense. The payment stays the same, but the amount going toward principal increases, reducing the length of the loan and the total interest expense. The table below shows a comparison between a 30-year fixed-rate mortgage with no additional principal payments, a mortgage with one lump-sum additional principal payment and a mortgage where a small amount is added to each monthly mortgage payment. I used Bankrate's mortgage payment calculator and the amortization schedule provided by that calculator to arrive at these numbers. It's an easy way to see precisely how additional principal payments reduce interest expense and shorten the life of your loan. [table] In this example, a $1,000 one-time payment reduced the life of the loan by one-half of a year and reduced interest expense by more than $5,000. Paying an extra $20 per month shortened the loan by 1¾ years and saved more than $12,000 in interest expense. Decide what you are able to do in your monthly budget, and use the calculator to see how it impacts your loan. If your goal is a lower monthly mortgage payment, additional principal payments won't help. But if the goal is to pay off your loan early, it's easily accomplished. http://www.bankrate.com/nltrack/news...20060119a1.asp === "Work like you don't need the money, Love like you've never been hurt, Dance like nobody's watching..." -- Richard Leigh _________________________________________ Usenet Zone Free Binaries Usenet Server More than 140,000 groups Unlimited download http://www.usenetzone.com to open account |
#2
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Extra principal won't reduce mortgage payments
In article ,
Ablang wrote: Extra principal won't reduce mortgage payments duh! |
#3
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Extra principal won't reduce mortgage payments
"Ablang" wrote in message
... Extra principal won't reduce mortgage payments What on earth made you think most people need to be told something that simple? |
#4
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Extra principal won't reduce mortgage payments
Maybe because if you have an adjustable-rate mortgage, each time it
adjusts it recalculates the payments based on however much principal actually remains. So extra principal WILL reduce future payments (after the next adjustment). Shaun Eli www.BrainChampagne.com Brain Champagne: Clever Comedy for Smart Minds (sm) now with stand-up comedy video on the website! |
#5
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Extra principal won't reduce mortgage payments
On 22 Jan 2006 10:29:36 -0800, "Shaun Eli"
wrote: Maybe because if you have an adjustable-rate mortgage, each time it adjusts it recalculates the payments based on however much principal actually remains. So extra principal WILL reduce future payments (after the next adjustment). Shaun Eli Wrong. It will reduce the number of payments. |
#6
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Extra principal won't reduce mortgage payments
In article , mad hatter?
wrote: On 22 Jan 2006 10:29:36 -0800, "Shaun Eli" wrote: Maybe because if you have an adjustable-rate mortgage, each time it adjusts it recalculates the payments based on however much principal actually remains. So extra principal WILL reduce future payments (after the next adjustment). Shaun Eli Wrong. It will reduce the number of payments. Wrong, some mortgages recompute the payment ever month. On those, extra principal payments and early normal payments will reduce the payment from month to month. At least that is how my mortgage with Washington Mutual worked. It is true that on many conventional fixed mortgages, once the payment is established, it never changes until the loan is paid off. In that case, extra principal will only shorten the loan. But these loans are less and less the norm these days. -john- -- ================================================== ==================== John A. Weeks III 952-432-2708 Newave Communications http://www.johnweeks.com ================================================== ==================== |
#7
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Extra principal won't reduce mortgage payments
On Sun, 29 Jan 2006 10:14:22 -0600, "John A. Weeks III"
wrote: In article , mad hatter? wrote: On 22 Jan 2006 10:29:36 -0800, "Shaun Eli" wrote: Maybe because if you have an adjustable-rate mortgage, each time it adjusts it recalculates the payments based on however much principal actually remains. So extra principal WILL reduce future payments (after the next adjustment). Shaun Eli Wrong. It will reduce the number of payments. Wrong, some mortgages recompute the payment ever month. On those, extra principal payments and early normal payments will reduce the payment from month to month. At least that is how my mortgage with Washington Mutual worked. Wrong for most loans except yours perhaps. Let me say it differently. On any fixed loan amount, extra principal payments will reduce the number of payments based on the length of the "original" loan (normal amortization is monthly). Of course if a loan is of only one month duration, then I agree with you based on the mathematics. |
#8
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Extra principal won't reduce mortgage payments
In article , "McCoy" wrote:
"Ablang" wrote in message .. . Extra principal won't reduce mortgage payments What on earth made you think most people need to be told something that simple? He doesn't care. The only reason this clown posts is to publicize his insane obsession with Hilary Duff. -- Regards, Doug Miller (alphageek at milmac dot com) It's time to throw all their damned tea in the harbor again. |
#9
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Extra principal won't reduce mortgage payments
"McCoy" wrote in message ... "Ablang" wrote in message ... Extra principal won't reduce mortgage payments What on earth made you think most people need to be told something that simple? obviously bankrate.com thought it was a good idea. |
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