joetaxpayer wrote:

- quote -

I've always done exactly this with my mortgages. Some might say, why
not just get a bi-weekly mortgage and make the scheduled payments?

However, the beauty of including the next principal amount in your
current payment is its flexibility. In other words, include next
month's principal whenever your finances allow. If you can't swing the
extra principle payment in a given month, just make the required payment.

Of course, as many have pointed out already, this is much easier to do
early in the loan, as the monthly principal portion grows with time.

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Dave Dodson <dave_and_darla[at]juno.com> writes:
- quote -

For the vast majority of fixed-rate mortgages, the monthly payment
is fixed. Prepayments of principal, therefore, do *not* lower
your next payment ("recompute your payments"). But since there
is less principal remaining on the loan, it *does* shorten
the remaining life of the loan.

Some mortgages (mine, in fact) may offer a "recompute" option
whereby (again, in my case, with a fee) to recompute the
monthly payment. If one has, in fact, prepaid a bunch of
principal, such a recomputation would stretch the life of
the loan back out to the original term (rather than the
shortened life the prepayments caused) and thereby lowere
the monthly minimum payments. But that recomputation is
by no means the default action in the event of unscheduled
principal prepayments.



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Joe and Dave - Thanks for the clarification that a prepayment will
change the term of the mortgage and not the size of the payments
(still the OP should check, with all the different paper floating
around). And the point Joe that you brought up about the 18 years or
thereabouts and 15 years might well work out. If I read the table
correctly, I noticed the principal seems to be close to 110k plus -
maybe that's where part of my confusion is - is this a new 110k loan
on a 135K something property (with fees to be paid off along with the
mortgage), or did he buy it 10 years ago for 200k (now worth 400k)???
A week ago I think I saw a 20 year mortgage, as well. Things have
changed - I'd never heard of a 30% down payment.

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Dave Dodson wrote:
- quote -

I think you are right, Dave. A fixed rate mortgage will not see the
payment required adjust due to prepayments. On the other hand, I found
that variables do work that way. When adjustment time came, the new
balance, time remaining, and new rate were used to calculate the
payment, so prepayments effectively reduced the payment at the next reset.

Joe

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dapperdobbs wrote:

- quote -

This is a good point not to be overlooked. The rate difference from a
30yr fixed to a 15yr fixed is .5% or better. With OP's mortgage about
6.7% from what I recall, a refinance may be in order. In any case, when
one is on a prepayment track it makes sense to monitor where they stand
in terms of principal, rate, and time remaining, as there's often a
tipping point, where you might jump from having 18 years remaining (on
the 30yr mort) to a new 15 at a lower rate with a payment no higher than
before the refi. Just something to ponder.
Joe

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On Mar 19, 2:59*pm, dapperdobbs <George...[at]hotmail.com> wrote:
- quote -

Of course it would depend on the particular loan documents, but my
experience has been that prepaying reduces the term of the mortgage,
not the monthly payment. So I think you are wrong here.

Dave

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I got confused on this thread.

Make sure you don't incur a prepayment penalty

I think the lender will recompute your payments, but NOT the length of
the mortgage (you would have to refinance into a shorter-term mortgage
for that)

While marginally lower payments will improve your cash flow a little,
as John pointed out if you can invest the prepayment at a higher rate
of return than your interest cost on the mortgage (both after taxes),
you end up better off in objective financial terms.

Your preferences and perceptions all play into your decisions. Most
take out a mortgage because they cannot afford to pay cash. But
someone who could afford to pay cask may elect a mortgage loan to
invest the amount in a higher return vehicle (such as stocks,
historically), or to leverage his returns on real estate held for
investment purposes (e.g. interest-only loans).

Many feel more secure and comfortable when all they pay on their house
is taxes and insurance, utilities and maintenance or improvements. If
that is your preference, why not ask the mortgage company (you should
definitely ask them before you write a check what will happpen) about
refinancing into a shorter-term mortgage at the same time?


On Mar 18, 8:57*pm, "John A. Weeks III" <j...[at]johnweeks.com> wrote:
- quote -

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jIM wrote:

- quote -

For those who lack the skill to write a spreadsheet, or if they do not
own a TI BA-35, the method the OP suggested, paying next principle and
staying in sequence, is really the only way to track this. The last
payment is mostly principal, and will jump him ahead 6 months and
change. But not an exact number, and he will lose his place for tracking
purposes. OP seemed to like being able to track his progress right on
the amortization schedule.
Joe

www.blog.joetaxpayer.com

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On Mar 18, 5:12*pm, Mike <m...[at]jadoti.com> wrote:
- quote -

Yes it isd that simple. If you pay "next months principal" you will
pay off mortgage in 15 years, not 30 (or in half the time).

If you want to accelerate even further, pay the principal amount on
the last payment (so if 30 year fixed, make principal payment on
payment 360 with month 1, 359 with month 2, 358 with month 3...

If you invest the extra payment, you will often come ahead "net worth"
wise, assuming a little more risk (than paying off mortgage early)
with more liquidity as a significant benefit to taking on that risk
and more net worth as the most common benefit of taking on that risk.


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding.

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In article
<28859472-dad5-4d2d-aafb-409c52ef5f8f[at]q78g2000hsh.googlegroups.com> ,
Mike <mike[at]jadoti.com> wrote:

- quote -

It isn't as easy as it might seem. That money you avoid paying
is not a savings. In fact, if you can invest your prepayment
amount in something that returns more, like the stock market
over time, prepaying can actually cost you far more than what
you save. You also give up some of the tax deduction.

-john-

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- quote -

Look at it this way. If you compound the $102 for 30 years at 6.7%/yr or
so, it grows to $712. i.e. if you invest it at exactly the rate of your
mortgage, you'll have it match that last payment.
Joe

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- quote -

Okay, I just wanted to make sure I understood the concept right... it
seemed right, but it seemed too easy.

Thanks,
Mike

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Mike wrote:
- quote -

Yes. You are correct as long as you specify the extra money goes to
principal. If paying the mortgage early is your goal, this is a great
way to view it. But at you get further down the road, that extra $600
may only pull you ahead three months, then just 2, etc., as your
principal portion is larger. You discovered one pretty painless way to
prepay, just pay the next principal portion. This cuts the mortgage in
half and payments only rise slowly over the years.
Joe

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Mike <mike[at]jadoti.com> writes:

- quote -

[current interest payment $610 and principal payment $102]

- quote -

Yes. That's 6 months worth of principal. You could knock
off the entirety of your remaining mortgage payments by
paying off *all* the remaining principal. Same idea.

Note that over time, the principal portion gets larger.
6 months worth of principal right now might be $624,
but the next 6 months worth of principal will be somewhat
higher. Your last 6 months of $712 payments will be
almost entirely principal. If you had only 6 months
left on that mortgage and wanted to speed it up by 6
months, you'd have to come up with the entire remaining
balance - which at that point will be approx $4200,
not $624.

Look at the far end of your amortization schedule.


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Hello, I have a question regarding early payoff of mortgages, and the
payments.

If I have a mortgage (110k) and monthly computed interest and
principle payments are
(briefly) shown on this amortization schedule..

Due Date Int. Princ. Def.Int.
Pr-Def Int Outstanding
4/01/2008 $610.36 $102.02 $0.00
$110,453.33 $110,453.33
05/01/2008 $609.79 $102.59 $0.00
$110,350.74 $110,350.74
06/01/2008 $609.23 $103.15 $0.00
$110,247.59 $110,247.59
07/01/2008 $608.66 $103.72 $0.00
$110,143.87 $110,143.87
08/01/2008 $608.09 $104.29 $0.00
$110,039.58 $110,039.58
09/01/2008 $607.51 $104.87 $0.00
$109,934.71 $109,934.71
10/01/2008 $606.93 $105.45 $0.00
$109,829.26 $109,829.26
11/01/2008 $606.35 $106.03 $0.00
$109,723.23 $109,723.23
12/01/2008 $605.76 $106.62 $0.00
$109,616.61 $109,616.61

If on 4/01 I were to pay the $610.36 + 102.02 (int and principle due)
PLUS make an
additional principle-only payment of 624.07 (sum total of 05/08 up to
and including 10/08 principle
payments), doesn't this effectively knock 6 months off my mortgage and
accelerate this
amortization schedule so that I am pretty much, on 05/08, making the
payment that I would
have made on 11/08?

Am I reading this right, that I can knock six months off my mortgage
right now for $624?

Thanks for any help,
Mike

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