payment decision

Guest 0.10 Dollars($)

I have two mortgages on two properties. The older one is 6.6% mortgage with small balance and only 5 years left on it. The other one is relatively recent and is a 30-year mortgage at 6.25 %. Most of the balance that is left on my first mortgage is principal while most of the payment on the second is interest. Now should I utilize any excess funds that I may get towards the second one as till now I have paid so little in principal for this one?

Guest 0.10 Dollars($)

Hi Mike,

Excess funds if any utilized for payments should go to the higher rate loan. That will help you save more.

Samantha · Posted: Fri Apr 28, 2006 11:44 am Post subject:

Hi Mike,

I too shall advise to utilize the excess fund towards the loan with higher interest rate. I can understand that since you have paid less towards principal till now so, you want to lower it.

But you should not be influenced with the composition of principal and interest of the loan while deciding on allocating the excess payment.

In a loan the composition of the scheduled payment gets changes over time. During the initial stages of the life of a mortgage, most of the payment goes to interest, but as the balance falls over time, the maximum share goes towards principal.

You would earn more if you allocate the excess funds towards the payment of the higher rate loan as 100% of the excess payment goes towards the principal in both cases. So, the excess payment towards 6.6% rate will help you to save more than what you can save on 6.25%.

Hope, this helps.

God bless you.

For MortgageFit,
Samantha

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