Amortization and paying extra principal??

[BoostKillsStres]

when you pay extra principal towards a house loan does it cause you to move through the amortization table any faster so your also paying more towards principal as calculated in the table each month or is the bank still getting the month by month interest listed in the table your just ineffect going to pay off the loan faster and not pay the interest that you would have if the loan went to full term?

In short, my question is, is the table dynamic and changes with each payment you make or not?
TIA

 

[AsphaltAnihil8r]

Originally posted by BoostKillsStres
when you pay extra principal towards a house loan does it cause you to move through the amortization table any faster so your also paying more towards principal as calculated in the table each month or is the bank still getting the month by month interest listed in the table your just ineffect going to pay off the loan faster and not pay the interest that you would have if the loan went to full term?

In short, my question is, is the table dynamic and changes with each payment you make or not?
TIA

From what I understand is that paying an extra $100 a month to principal drops that 30 yr mortgage to 22-23yrs

 

[dsa87gn]

one the lines asphalt says...

the way i understood it was if you make 1 extra payment a year,
It will turn your 30 year into a 22-23year mortgage.

Yuo only pay interest on what you pricipal is. Its preey easy to figure what your interest is each month:

principal * interest rate / 12

If you want to knock it down the fastest, put as much as you can early on. It will save you tons in interest. It used to be "take the extra money and invest it" and you will be way ahead. But the way the market is going now, I'd chip away at what you know you have to pay....

 

[BoostKillsStres]

Thanks for the info, I was actually able to verify this myself as I found my origional amortization table printed out from the purchase of the house and online, my bank shows the breakdown of my last payment to them so I can see that while I'm at payment month 57 in terms of total months payed, I'm actually at payment month 100 based on the a-table principal thats being payed as I've been paying extra every now and then to save on the interest so I've basically cut 3.5 yrs off the term of the loan so far

Thanks

 

[GN One Day...]

Correct. You can somewhat track it with your original amortization that you got at closing. Every dollar you pay towards principle, subtract from the principle at the end of the loan. How much you pay each month to pay off XXX years faster depends on your loan amount. Somone with an $80,000 loan will go a lot farther paying an extra $100/mo than someone with a $200,000 loan. Needless to say, whatever extra you can pay is beneficial. The sooner you do it the better. The more you pay off faster, the less you're paying interest on. If you know how many months you have remaining, your principle balance and rate, I can email you an amortization if you have a certain date you want to pay off by. This is the same principle behind biweekly payments. 2 extra payments each year that way. You can do the same thing by paying extra towards principle like you're talking about.

 

[2GNS4ME]

Hey Guys,

I just went through this a couple of weeks ago. What I did is took 1 month mortgage and divide it by 12. For instance if my mortgage is 1500 divide that by 12 which equals 125. I would put a extra 125 toward principal every month which at the end of the year be a "extra payment" a year. I knocked down about 8 yrs toward my mortgage.

I was gonna divide my mortgage to two payments a month (every other week) but I would have to take a extra hit 2 months out of the year. Thank God I talked to someonelse the 2nd time I called and she explained everything to me. Hope that helps.

Joe

 

[Lee_Burough]

Increase your monthly payment by 10% and cut the total amortization time in half....Its easy.

 

[HRpartsNstuff]

Watch how your bank applies the extra payments. Most wait until the end of the month no matter when you pay it. Some apply it the day they get it. This effects your payoff 2 ways:

If you always pay it within the 10 day "grace" period, it is technically not late, but... If they apply your payment days later than when it was supposed to be, your interest compounds faster & you end up with a BIG last payment, not what they figured it to be in the beginning.

The good side is, if you pay half a payment twice a month, it is kinda like getting that extra payment per year without actually paying it. Because the money gets credited quicker, the interest is figured on a smaller balance for those last 2 weeks.

If you can pay half a payment every 2 weeks, you get double benefits. Just ask if the interest is figured daily or monthly.

Also, if you have a FHA loan with originally less than 20% down, you are probably paying PMI insurance. It is expensive & does nothing for you. If you get your balance down to less than 80 percent of the current value of the home, it might be a good idea to refinance. Even at the same rate, if you lose the PMI insurance, it can save you hundreds per year. The FHA won't take it off if you get it paid down, you ned to refi.
Hope that helped-

 

[Lee_Burough]

Two things:

Paying every two weeks pays an extra payment in a year's time....That is why its a good thing. A loan company should post the payment when its recieved, if you do it electronically (i.e., electronic transfer), there can be no argument....

PMI is a waste, but, you do not need to refinance to be rid of it. Have your house reappraised when the loan to value shows the outstanding loan is LESS tha 80% of the value of your house, the loan company MUST stop charging you the insurance premium when you provide the appraisal. I believe you'll find that is the law on this matter. Just use an appraiser thay will recognize.

 

[GN One Day...]

Bi weekly payments work out to be 2 extra payments a year, not just one. They are great for people paid every 2 weeks, but for others may just be a PITA. Like has been said, 2 months out of the year when you get hit with 3 of those payments, it's going to suck. Most, if not all, lenders will offer you this to you after you have made your first couple of payments. They may require that it be automatically drafted (they know it's hard to keep up with). I don't recommend it if you aren't paid in the same fashion. When they send you the offer, find out what your payment would be, multiply that by 26 (# of payments/year), divide by 12, subtract your current payment and send in the difference at the first of the month. That way you get the benefit without the issues, if you like paying once a month. Your payment coupon should have a place for you to write in any extra towards principle. You may want to write a second check for that amount, for ease of tracking in your statements, and to call attention to the extra payment when someone is processing that payment. There is no significant savings over this by using the bi-weekly payment instead. You might pay an extra month or two in the end, or maybe just have a slightly higher final payment. Worth it, IMO, for the easier payment tracking. Not talking about much money here. Go whatever route is easier for you to budget. For me, remembering to deduct a payment from my checkbook every 2 weeks would be a pain.

Lenders are required by law to drop PMI when your LTV reaches 78%. At 80% you can call in and have it dropped. You should check with your individual lender to see if they will accept a new appraisal. Some will not, some may just have a set of guidelines. They may want to be the ones to order the appraisal, rather than you doing it on your own. Appraisals can be manipulated, and since THEY are the ones protected by PMI, they will not take it lightly and risk a bogus appraisal screwing them out of that protection.

The good thing about an FHA loan is that your monthly PMI is based on .5%, even if you are at 97% LTV. Conventional financing starts at .78% varies with every 5% down, term, as well as some other factors that sometimes come into play. However, you financed in 1.5% up front PMI also with the FHA. If you plan to stay in your house at least 5 more years, you might do better to refinance, since rates are incredibly low. Drop or lower the PMI, lower interest rate and you should recoup your closing costs in time to benefit. All depends on the monthly savings and closing costs your lender has. That's where the shopping around comes in. It does *not* boil down to saving 1% off of your current rate, that's a popular saying that is overly simplistic. It has to do with your loan amount and if you might go to a shorter term. Take the costs, divide by savings and see how long it takes to recoup. That'll tell you what you need to do when you compare it to how long you plan to be in the house.

BTW, PMI doesn't protect you, but it isn't necessarily a waste. That's one of the tools that makes it possible in our country to only put down 3%, 5%, even 0 on a house, since it reduces risk to the lender. Other countries they may have to put down 30-50%.

 

[HRpartsNstuff]

Originally posted by GN One Day...
Bi weekly payments work out to be 2 extra payments a year, not just one. They are great for people paid every 2 weeks, but for others may just be a PITA.

Bi-weekly = 26 (half) payments per year = 13 (full) payments per year. It is technically 2 extra payments per year, but they are half payments, so it's really only one extra monthly payment per year. I agree it can be a PITA to pay every 2 weeks if you are not used to it & not diciplined enough to have a cushion for the heavy months.

Many loan companies wait until the end of the month to apply any payments received, by whatever method you use. If they apply it the day they receive it, that's when you can save a little more. Setup auto payments or pay half the payment twice per month. PLEASE don't confuse half a payment twice a month, with bi-weekly payments. The half twice a month gets it to the bank sooner, but is NO extra payment per year. As I said, it only benefits you to do it that way if the bank applies it at that time & not the end of the month.

As for PMI, I was told & under the understanding that normal lenders can drop it when it goes under the 80% level, but...
FHA loans can't have PMI removed at any time, even if you have 50% equity in it. It stays on the loan until it's paid or refi'd. It could have changed, that's how I understood it a few years ago.

ALSO, paying off the mortgage quicker is NOT always the best idea. Reason is, that interest rate is usually low, and it's usually tax deductable. That makes the "effective" rate even lower. If you have any higher interest credit card balances, pay them off first. That will benefit you more than doing it on your home loan or just about any investment right now. Also, look at other loans you may have too. Paying off other loans first that are higher interest & not tax deductable are probably a better idea. If you can pay the mortgage down & get the PMI off it, that might be better too, but then get back to your high interest non tax loans. Just weigh out your options & look at the whole picture.

If you don't have an emergency fund, you may look at paying your mortgage one month ahead instead of putting it on the principle only. It isn't good to do this over & over, because it really doesn't pay it off a lot earlier like going towards principle does. It is good to have at least one month paid ahead in case something happens. Keeps your credit in good standing & helps in the tough times. An emergency fund is better, but I am sure we all can't put 3-6 months wages back for a rainy day.

 

[GN One Day...]

H&R
Correct on the PMI on the FHA loan. I was clarifying (poorly) what Lee mentioned about getting it dropped.

 

[scottyb]

Your interest is calculated based on the current principle, so paying extra will require that you re-calculate the amortization each time the principle varies from the schedule.

While paying off a mortgage is something we all would like to do, consider a few things. Before you pay more principle, please exhaust ALL avenues of investments where conservative rates are greater than the mortgage interest rate. This is especially attractive if you have recently financed and your rate is low. For instance:

401K - Make SURE you are contributing the max amount that your employer is matching a percentage on. This is tax free income. Calculate what the rate of return is AFTER the matching is done to compare to rates that you pay.

Roth IRA and other tax-free investments. Again, be sure you are taking full advantage of them.

Other conservative investments. Any rate that exceeds that of the mortgage will benefit you in the long run. Rates "most likely" will go up on investments while your morgage rate will not change.

I'm not saying you should take risky investments. Conservative ones should easily beat your mortgage rate if you have recently financed. (~6%)

I have a handy-dandy loan/investment spreadsheet I constantly tweak, email me if you'd like it.

I personally will continue to leverage my property for investments as long as 2 things exist: 1. the mortgage rate is attractive/low and 2. the value of my property continues to exceed the mortgage (in other words, property value doesn't tank, which is VERY unlikely).

 

[GN One Day...]

Originally posted by scottyb
Your interest is calculated based on the current principle, so paying extra will require that you re-calculate the amortization each time the principle varies from the schedule.

True. I tell people that if they feel they can commit to a certain amount extra each month, that I can print an amort based on that fact. Your broker/banker can do this with the software they use, most likely. The catch is keeping up with that payment. Payoff date etc. can be calculated and put into a schedule based on a certain principle payment on a regular basis. It's when extra payments are made in varying amounts or varying time frames that it gets difficult to figure.