Mortgage Calculator Extra
When you make extra payments on the principle of your mortage does it
recalculate your loan?
So if you buy a house for 100K and one month later get a gift from a
relative of 10K and send towards the principle of your mortage does
that mean the loan is recalculated at 90K? Would this mean that your
monthly payments would go down.
Most mortgages are amortized. You have a fixed payment per month.
You only pay interest on the principle you borrowed that month. Any
money left over after interest goes to reduce principle. So you start
off paying just a little principle. But since this lowers your
balance, you pay off a bit more the next month. The last year you are
paying almost all principle and little interest. So if you pre-pay
$10,000 your payment won't go down. The number of months you pay will
go down. In theory this could take about 6 years off a 30 year
mortgage, depending on the specifics
The biggest benefit is always in paying on the principle. A cd is not going to give you 6.5%, if you pay on the principle with extra cash, you are basicly earning your mortgage interest rate on your investment. If you intend to refinance a couple years down the road and you have paid extra on your principle, you will be refinancing a LOT less as you knocked down the principle and a lot of interest. My standing on this subject is to pay all extra that you can on your mortgage, the tax benifits are NEVER as great as what you save in mortgage interest.