Paying Extra Principal on Mortgage

[Anonymous]

Anonymous wrote:There is a difference between making a payment early and paying extra principal. Making my December payment in September does NOTHING to reduce the interest I owe, it just gives the bank my payment early. Making an extra principal payment reduces the loan balance, so reduces the amount of principal accruing on your loan. OP is talking about the later. The PP talking about effective mortgage rates may be confusing these two.

some lenders you have to contact to tell extra should go towards principal, their default is to not do it. Some require you contact each time, others let you make it a standing rule. Mine does apply to principal automatically but I still check statement to make sure.

[Anonymous]

Anonymous wrote:

Anonymous wrote:There is a difference between making a payment early and paying extra principal. Making my December payment in September does NOTHING to reduce the interest I owe, it just gives the bank my payment early. Making an extra principal payment reduces the loan balance, so reduces the amount of principal accruing on your loan. OP is talking about the later. The PP talking about effective mortgage rates may be confusing these two.

some lenders you have to contact to tell extra should go towards principal, their default is to not do it. Some require you contact each time, others let you make it a standing rule. Mine does apply to principal automatically but I still check statement to make sure.

This is very true. Anyone has to be clear to their mortgage company whether they're making a payment or paying extra principal. My mortgage company makes me choose either "monthly payment" or "extra principal" any time I make a payment, so it is easy for me to be clear each time. (I also have my monthly payments on autopay so any time I log in to make a payment it is for extra principal). It definitely may be more difficult depending on your mortgage lender. I 100% agree with checking your statements each month. Good reminder.

[Anonymous]

Anonymous wrote:

Anonymous wrote:There is a difference between making a payment early and paying extra principal. Making my December payment in September does NOTHING to reduce the interest I owe, it just gives the bank my payment early. Making an extra principal payment reduces the loan balance, so reduces the amount of principal accruing on your loan. OP is talking about the later. The PP talking about effective mortgage rates may be confusing these two.

some lenders you have to contact to tell extra should go towards principal, their default is to not do it. Some require you contact each time, others let you make it a standing rule. Mine does apply to principal automatically but I still check statement to make sure.

I think there is some regulation about that. I was paying extra on principal for 2 years and noticed all they did we skip me ahead and say I was just paying in advance. I called them and told them the days it wrong and they very quickly reamoritizrd my loan on the next statement showing thousands and thousands added onto principal as I had intended

[Anonymous]

I paid a lump sump 140k prepayment last April.

My mortgage was $2600 with $1,600 interest and $1,000 principal

By prepaying it is now $1,050 interest and $1,550 principal.

It was a one time thing. But my house is getting paid off quicker. I am retiring in 7 years so want to be able to pay it off then.

And stock market is back at April 2021 levels so worked out.

[Anonymous]

designate that you want the payment to be applied to the principal

[Anonymous]

Yes, pay the higher rate one first. We have two houses and that's what we are doing, although our higher rate one is on our primary house. Only 5 more payments till we are done, at which point I will put all the extra into the beach house.

We already save a ton, and are sadly overinvested in equities right now, so paying off the loans is a good use of extra money.

[Anonymous]

I agree that you should pay the higher interest loan first, unless you rent out the second home. If you do, it may be to your advantage to pay the minimum required on that loan.