Reducing the loan balance by additional principal payment

Sam

A borrower often makes an additional payment towards the principal loan amount in order to reduce the latter. This sum of money is known as the additional principal payment.

In case of a fixed rate conventional mortgage, the principal loan amount is reduced by additional payments towards the principal. But this does not lower the required monthly payment that includes both principal and interest.

Additional principal payments reduce the outstanding loan balance thereby lowering the monthly interest expenses. The payment remains the same with the amount towards the principal increasing while the total interest payment gets reduced.

The table given below shows a comparison with a 15 year fixed rate mortgage with no additional principal payment, and a mortgage where a small amount is added to each monthly loan payment.

Let the total loan amount is $200,000 and the interest rate be 7%.

15 year Fixed Rate Mortgage	No additional payment	With monthly additional principal payment of $ 50
Monthly Payment	$ 1,797.66	$ 1,847.66
Total payment	$ 199,369.01	$ 199,319.01
Total Interest	$ 123,578.18	$ 117,070.02
Loan period (In Months)	180	172

As per the example given above, paying an extra $50 per month would shorten the loan period by 8 months and save more than $6,500 in interest payments.

Guest

i have 12 years left on a 200,ooo mortage how can i pay it off faster by paying extra and how much

vegas_storms · Joined: 12 Sep 2008 Posts: 67 3.54 Dollars($)

Your question is a little vague as any additional amount you pay will payoff your mortgage faster.

helping_user · Posted: Sat Sep 13, 2008 2:37 am Post subject: RE:

Welcome helen.

Depending upon how much are you willing to pay extra, the time period for repaying the mortgage will be reduced. That is, the more extra you pay, the faster you can get rid of the loan.

To calculate how soon you can pay off the mortgage, you may use the Mortgage payoff Calculator.

Thanks.

lisascherzer · Joined: 04 Jan 2008 Posts: 755 1.11 Dollars($)

To find out how much to pay towards the principle and how long it will take to pay it off go to a mortgage amortization calculator. You will be able to see how much you will owe each month until paid off.

Guest

I am paying on an 80/20 interest only loan. The 80 portion is $107,000 and the monthly pymt is $965 for 30yrs, however, the interest only timeframe is 10yrs (8 yrs remaining). The 20 portion is $27,000 and the monthly pymt is $275 for 20yrs, however, the interest only timeframe is 10yrs (8yrs remaining).

I am trying to pay off the 20 portion of the second mortgage. I plan to pay atleast $800 per month toward the principal of the second mortgage which has a current balance of around $26,000. My question is, as I pay down the principal, will my monthly interest payment be drastically reduced.

eric1 · Posted: Sat Mar 21, 2009 5:26 pm Post subject:

Send as much as you can each month. Your interest portion of your following months' payment will be reduced each time you make the extra payment.

Guest

180,000.00 mortgage @4.375 interest rate for 15 years @payments of 1565.52 with an additional principle payment of 1000.00 a month how long before it's paid off?

jerry · Posted: Tue Sep 22, 2009 4:10 am Post subject:

Hi Chase,

As per my calculation, you're supposed to pay off your loan approximately 7 years and 6 months before the scheduled payoff date. I've assumed the starting date of the loan as 1st September, 2009. If you make your usual payments, you can pay off the mortgage in September, 2024. However, if you make an extra payment of $1000 per month from the starting date, you can pay off the loan in February, 2017. By making the pre-payments, you end up paying interest of $31,209.78, instead of $65,792.99 over the life of the loan. This means you save about $34,583.21 in interest by making the extra payments towards the principal.

I've used the following calculator to find out the above-mentioned figures. You can put the exact figures, like the exact starting date of the loan etc., and calculate on your own to get the result:

"http://mortgage-x.com/calculators/extra_payment_calculator.asp"

Thanks,

Jerry

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