Any one do this? I was talking with a gentleman and he gave me some interesting information. I told him I always send an extra $100 a month on my mortgage to be applied to the principal. He said that if you enclose it with your regular payment they take the payment on the end of your loan and that from now on send a seperate check seperate envelope and specify what month you are prepaying. For example if you are sending in Junes payment send in the extra principal and specify July 2001 principal payment. He said federal law prohibits intrest charges if the principal is paid. It makes sense to me but the one thing I dont understand is why you couldnt do that every month and eliminate all your interst? He said you do it every other month and there for are eliminating 6 months of intrest. I hope this makes sense and would appreciate your imput.

-- tracy (murfette@stargate.net), June 09, 2001

Answers

hi tracy, it probably depends on your mortgage company, but you do need to specify that the extra payment is for principal, so they know how to apply it. I make extra principal payments most months, included in my regular check, but my payment coupon has a place to add in extra principal. If you have an amortization schedule, you can follow it with your payments to see exactly where you stand each month. For example, when I make a payment, I look to see what the principal would have been for the next month, and add that. By doing so I have made a double payment, and skip the interest that would have been charged with that second payment.(of course, you don't have to follow the schedule or pay certain amounts extra, but this way I always know exactly what I owe on the mortgage, and exactly how much money I have saved by doing it that way.)

-- mary, in colorado (marylgarcia@aol.com), June 09, 2001.

Mary, I also have a area to add for my principal but was told that unless you specify what month to apply it to it will be applied at the end of the mortgage where you are paying mostly principal there for the mortgage co is still getting all the interest in the begining of the loan. My question still is that if you did this every month wouldnt you never have to pay intrest? If you always stayed 1 month ahead of the scheduled payment and payed the principal you wouldnt have to pay any intrest. It seems like that would be to good to be true but maybe there is that loop hole and if I could save all that money in intrest that would be great. Also why couldnt you do that with other payments such as a car payment,etc. I would love for some one to refer me to a site that has that law if it is true.

-- tracy (murfette@stargate.net), June 09, 2001.

Tracy, I really think that is too good to be true. Extra principal always goes to the end of the note, from what I've always heard. The banks couldn't afford to lend you money if what you are asking were true. In a note, the first 5 years is all interest, and the last 5 years is almost all principal, about half and half in the middle. They would never let you get away with sending in just the principal, even if it was a month ahead. It shortens the life of the note by taking it off the back, and you will save money in interest over the long run.

When you've made enough extra payments to get you backwards to the middle (in years) of your note, then you really start knocking off allot. One full payment will knock off 2, get it? Half interest, half principal.....one payment knocks off 2 payments principals, therefore those 2 payments interests are gone. In a 15 year note, the first 5 years is interest, the middle 5 is half and half, and the last 5 is principal.

-- Cindy in KY (solidrockranch@hotmail.com), June 09, 2001.

I found this doing a search on mortgage laws....It's usually a good idea to make extra payments on your principal if you can, because that can reduce the term of the loan by several years and save you a bundle in interest. It's easiest to keep track of if you make each prepayment for the exact amount of principal due the following month. For each of these payments, you cut a month off the term of the loan.

Now in theory if you have an armorization schedule, especially at the beginging of a loan when the payments are all intrest you could send in 3 extra payment to be applied to the principal for the following months and knock off quite a bit of years very quickly. I am gonna try it. Any one else??

-- tracy (murfette@stargate.net), June 09, 2001.

Don't forget about the income tax benefit of mortgage interest. Depending on your income situation, you could end up paying in income tax what you save in mortgage interest by making extra payments. My personal goal is to get out from under the mortgage debt so I can reduce my required income and spend more time engaged in healthy living activities on the homestead.

-- Skip Walton (sundaycreek@gnrac.net), June 09, 2001.

tracy, when you add that extra principal to your payment, it decreases the amount of interest you pay by decreasing the amount of principal they are figuring it on. You don't get out of paying interest, but you pay a lower amount, based on a lowered principal. It does apply immediately to the principal. Do you have an amortization schedule? If so, it would make it easier for me to explain to you what is happening.

-- mary, in colorado (marylgarcia@aol.com), June 09, 2001.

We also have been making extra principle payments and we, too, have a spot on the coupon to mark for extra payments. I don't believe it makes any difference if you specify a certain month for the extra money. I would want it to come off the pricipal right away since the interest is consistantly being added. We started doing this about a year ago. Our mortg co sends us a quarterly stmt that shows the amounts going to pricipal and interest. Depending on how much extra we are able to send in the interest amount goes down each month because the principal balance goes down. That means that the speed at which you are paying off your mortgage picks up with each additional dollar you send in. We have reached the point now where more of the regular payment is going to principal than interest, it was very much the opposite when we started. At the rate we are going we should have our 15 year mortage paid off in 7 years and we didn't start the additional payment plan until last year. My dad told me once that if you send an extra $100 a month towards your principal you will cut your payment time in half. Of course that depends on the amount of your loan. Every little bit helps and being out of debt is worth every bit of scrimping and sacrifice in the long run. But that's just my opinion. Good luck to you.

-- cindy palmer (jandcpalmer@sierratel.com), June 09, 2001.

We bought our place in Feb 1991, $70K. The first couple of years we were busy paying off credit cards and a truck note. Then we started adding every extra penny we could manage (while still putting some in savings) and I always included it with the normal payment (same check, envelope and payment stub). I DID write on the stub the total amount of "extra principal" in the place indicated. Since the check was for the current payment plus extra I never wrote anything but the loan number on it.

We paid off our place in June 2000 and became completely debt free. Along the way we saved enough that I quit work in Dec 1999 and my husband could have quit if he wanted to.

Our monthly living expenses are under $600 and we draw, or rather drew until interest rates fell, that much per month. We live very comfortably, nice brick home, some land around us. Lots of toys and a house full of furniture and family handed down antiques.

Pay your mortgage off - those of say this is bad do not know what they are talking about - IMHO. As I said we bought in 1991 by about 1995 our interest was too low to deduct, we were paying it for nothing.

-- Viv in TX (kudzu1@webtv.net), June 09, 2001.

I don't know who "HE" is but. He has just enough informatino to be very confusing, as well as about half right (that would also be about half wrong)

First off Federal laws only apply to loans that are federally insured.

His statement about the law prohibiting the charging of interest if the priocipal is paid, is correct EXCEPT that he forgot to tell you that it only applies to the amount paid. So if you pre pay $100 then you do not owe interest on that $100 because it is no longer borrowed.

Someone mentioned using an amortization schedule, and marking off the interest payments, as extra payments are made. This is an O.K. thing to do, BUT it will not be accurate. You see the first time that you make an extra payment, even only $1 you have then made the entire schedule incorrect, and it will always be incorrect because the princaipal amount has changed (you made an extra payment). This will change again every time that you make an extra payment.

Extra principal only payment may be taken from the current balance or the end or the middle, it makes no difference.

If you were to send an extra payment in for July, right now presuming it was a full payment; it would probably be held for July, and credited first to interest owed then to principal. It is necessary that the interest be paid every month.

There are many opinions about making extra principal payments. I have done this in the past, and if I had it to do again I would seriously consider owning two hauses rather than making extra payments. In my case the house that I had went up in value a lot faster than I could pay down the note. I would have been far ahead of the game to have had two houses.

-- Ed Copp (OH) (edcopp@yahoo.com), June 09, 2001.

If you pay just the principal for the next month, then go on to the month after that on your amortization schedule, the numbers will indeed jive every time. I have done this for years. My mortgage statement comes back showing what I paid and what I now owe, and it always matches.

-- mary, in colorado (marylgarcia@aol.com), June 09, 2001.

If you doubt your figures re: what you owe, just call the bank to compare. I used to call all the time and they happily answered my questions. Yes, they tried to tell me how to check on-line or by phone machine, but I preferred a real person. This confirmed my numbers and helped fuel the drive to pay off the mortgage.

-- Anne (HealthyTouch101@wildmail.com), June 10, 2001.