With almost all mortgage servicer companies you would need to list out the specific amount on your mortgage coupon to be applied toward principal. There should be an area to list it out.
Important note is that you MUST be current on your payments when you send in additional principal money. The servicer will not apply additional funds toward your loan if a payment is currently due.
The best practice is sending in additional principal with your mortgage payment and use the mortgage coupon to list out the exact amount above the payment due. If you don’t receive statements you will need to send it in after your monthly payment is paid and recorded with instructions to apply toward principal.
As all mortgage servicers have slightly different methods of payment offered, the best way to be absolutely sure is to call them and ask exactly how they would like to receive a midcycle or principal only payment. Generally, though, as long as your interest is paid and any escrow or late fees are paid, any additional money will be used to reduce principal, whether it is included in the same check or wire as your monthly payment or not. If you want to make a midcycle payment, you should clearly label the check or payment with your intention … If your payment is due for the coming month, remember that any interest due will be deducted prior to applying the remainder to principal.
To clarify … if you make the January 1 payment, you are paying for DECEMBER’S interest – mortgage interest is paid in arrears. So, if you make a second payment in January, the lender will likely take january’s interest out of it before any remainder is paid to principal. To make sure that your money is used as intended, make sure that you include enough money for the entire month’s interest (the Feb 1 payment) AND the additional principal you intend to pay… . that way, no further interest will be due intil March 1, and your principal balance will be reduced.
The best way I have found is to either send a separate check labeled “Principle Reduction Payment” or to set up a separate auto-draft with your lender specifically for principle reduction. If you just write the extra payment into your monthly payment check the lender will most likely just apply towards the next months' payment, not the principle. A lot of time’s this will also depend on your lender. For instance, some community banks will automatically apply any overages towards principle. Depending on how many extra payments you would like to make a year, it may be a good idea to ask your lender if they have a bi-monthly payment plan. By paying every 2 weeks you will add 1 extra payment every year. A structured plan of this nature will allow to avoid any confusion on principle only payments.
When you send in your payment make sure that you physically write on your payment coupon that you want the funds applied to principal. No matter how you make your payment just make sure that you insist it be applied towards principal. Your Lender must adhere to your request and will in turn apply the funds toward your principle loan amount.
Making one extra principle payment can lower your loan term by about 7yrs! This is how people pay off their mortgages in so little time. All the commercials you hear on the radio about becoming debt free, this is how they do it. The same applies to car payments too!
There’s no need of making any extra payment separately towards your principle, as while dealing with the company or lender you might have fixed your monthly installment. And now if you make your installment more than that what has been calculated, the fixed amount will be your monthly installment and above that will be treated as payment against your principle. So there’s no need of making any extra payment besides that and if you don’t want to mix it with your installment then you can certainly make separate payments which would be considered as an direct payment against your principle.