Paying extra on a mortgage when funds are available can save you lots of money, but there are important items to consider. First and foremost, paying extra does not give you the right to skip future payments, in most cases (unless you make separate payments and the servicer correctly posts them). It’s vital to let your servicer know where you want the extra funds applied to (typically the principal balance), if you fail to note that on the statement or when paying on line, the additional funds may go to your escrow account (which doesn’t save you any interest) or sometimes be held as “unapplied funds”. As far as the interest, when you pay extra(and it’s posted correctly) it reduces your principal balance, which shortens the term of the loan. You’re still charged interest monthly on the outstanding balance, but will note a small decrease over time in the interest charges. “Paying ahead” will not save you nearly as much as additional principal payments. If your intent is to save money and shorten the term of your loan, adding additional principal funds to your monthly payments will really help. Hope that answers your questions, let me know! Thanks, Ted
Unless the mortgage is recalculated, your amortization payments will remain the same. This does not mean that your extra payments are not actually effecting the interest owed, it just is not showing up on your payment schedule. Where you will really see a difference is when you compare the loan balance at the end of the year against your amortization schedule. Those extra payments will add up then and you will pay off your loan much earlier.