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Extra Payment Toward Principle Reduction

Mortgage Library: Ask a Mortgage Related Question: Answers: Lenders with 125% LTV Ratios

Question:

How do i make extra payments on my mortgage. and direct it to pay down my principle end of the loan. Is there a way to pay off the back end of our loan, decrease the interest paid and the length of the loan? 

A
Rochester
Minnesota

Answer:

Ann,
Thanks for the question and it's a good one I get quite often. The easiest way to make an extra payment toward principle reduction on your mortgage is to simply add an amount to your monthly payment. Many lenders even have it as an option on the monthly coupon you send in with your payment. They have a box on it that you mark if you are sending in additional principle. If yours doesn't, you can write on the check that you are adding it (e.g. +$100 for additional principle). Some people prefer to write a separate 2nd check. No matter how you send it in, your lender will reduce the outstanding principle of your loan. To be sure, you may want to contact your lender to see if they have a preference on how to send it in. There are payment alternatives available that I want to make you aware of too that can help reduce principle faster. You may want to consider bi-weekly payments where you make a payment every two weeks rather than once a month. This essentially is the same as making 13 payments a year. Or you can make 2 payments, with each being 1/2 of the normal monthly payment. Be sure to check with your lender that they are will apply each payment as soon as they get it rather than just holding on to the first half payment and waiting to get the 2nd before applying either to your loan. With this payment method, you are getting the benefit of paying the first half 2 weeks quicker, thus lowering the outstanding principle quicker each month.
I hope this answered your question. If you have any others, please feel free to contact me or Mortgage-X.

Thanks,

Rich Kusick
President
MN Residential Mortgage, Inc.
Ph: 651-797-4090
Fax: 651-797-4092
www.mnresidentialmortgage.com

NMLS #179278


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