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Principal curtailment: Pay extra to get out of mortgage fast

Principal curtailment refers to making extra payments towards a mortgage debt to pay it off faster. The additional payments are applied towards the principal balance on the loan. The more extra payments you make, the faster the principal balance on the mortgage reduces. This helps you save a lot of money in interest payments over the entire life of the loan.

Principal curtailment - An example

Let's say,

The principal balance on the mortgage = \$100,000
The term of the loan = 30 years
Interest rate = 5%
The monthly payments on the loan = \$536.82 or \$537 (approx.)[Using the FRM Calculator].
The number of payments it takes to pay off the entire loan = 12 x 30 = 360

Now, let's assume;
The extra payments towards principal = \$100 per month.
The total money saved in interest over the life of the loan = \$30,531.66. [Using the Mortgage Payoff Calculator]
The number of payments it will take to repay the loan = 256.

So, with an extra payment of \$100 per month, the entire mortgage will be paid off in (256/12) or 21 years 4 months. This means it will take you almost 8 years and 8 months less than the scheduled time (30 years) to get rid of the mortgage liability.

Does principal curtailment reduce monthly payments?

Principal curtailment reduces the principal balance on the loan. It does not lower the monthly payments. But when you make extra payments, the principal balance gets reduced quickly, meaning an early payoff and savings in total amount of interest over the life of the loan.

My friend's mortgage statement had a line item for principal curtailment - we're not sure what it is.

savior70 | Joined: March 25, 2009 05:14 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Hi,

The extra payments you make on your mortgage are applied against the principal and helps pay off the loan faster. I think it should show at the end of the year. You can contact your lender and ask for a detailed explanation as to how the principal curtailment has been applied towards the mortgage.

Like | Dislike | Share | Posted: Fri, 12/11/2009 - 05:06

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

I send extra payment to my lender to be used on my principal but they aply it as a regular payment then i complain and they credit it back to my principal,i have a clause that it says that any extra will be used for my principal ,however they seem to ignore it untill i call them to complain is there a law or agency where i can file a complain Im tired of this people. thanks.

Like | Dislike | Share | Posted: Sun, 04/24/2011 - 09:05 | Post subject:

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

I am refinancing, and my broker has a \$1,100 line item called Principal Curtailment. I understand what a curtailment does, but I have never seen a mandatory curtailment in a HUD when I [url=http://www.mortgagefit.com/refinance.html]refinance[/url]. I am told this curtailment will be applied against the loan when the account is set-up and my principal will be \$1,110 lower, why is this necessary? Am I getting taken? Is the broker just trying to get me to pay his fees to the lender? Thanks in advance.

Like | Dislike | Share | Posted: Wed, 10/05/2011 - 18:56 | Post subject:

smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Hi Anne!

Welcome to forums!

You can use the given calculator in order to find out how fast you can pay off your mortgage:
http://www.mortgagefit.com/calculators/extra-payment.html

Feel free to ask if you've further queries.

Sussane

Like | Dislike | Share | Posted: Sun, 01/24/2010 - 23:23

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

why did my bank take \$73.92 out of my checking account for a principal curtailment,if i did not ask or authorize? We have been living in our house for 2 years, this is the first time this has happened. I did not even know what a principal curtailment was until i googled it. Thanks

Like | Dislike | Share | Posted: Fri, 06/22/2012 - 12:55 | Post subject:

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

which is better to pay into the principal or escrow to pay off the mortgage faster?

Like | Dislike | Share | Posted: Mon, 10/25/2010 - 07:49 | Post subject:

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

If you have the extra money to put towards it, are there any downsides to paying curtailments on your mortgage since it is applied directly to the principal?

Like | Dislike | Share | Posted: Tue, 03/30/2010 - 08:00 | Post subject:

gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

if anyone says there is a downside, i will be among the first to argue the point. of course, if you're foregoing essentials (food, clothing, etc.) to do so, that might call the practice into question.

Like | Dislike | Share | Posted: Tue, 03/30/2010 - 08:31

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Why did my mortgage bank apply the extra payments I made in 3 years(\$5,300.00) to the PAYOFF amount and not the principal?

Like | Dislike | Share | Posted: Fri, 01/28/2011 - 00:29 | Post subject:

gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Screenname, it appears that they lack understanding. Your mortgage documents (originals) will spell out who their supervisory agency is - you could contact them, but don't expect a lot. I don't suspect that this sort of matter is looked at as a major priority by anyone other than you and other consumers in the same boat.

Like | Dislike | Share | Posted: Mon, 04/25/2011 - 13:45

gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Principal curtailments would definitely make a difference in your payoff amount, so I'm not quite certain I understand what took place here. What gives you the impression that you've suffered?

Like | Dislike | Share | Posted: Fri, 01/28/2011 - 12:55

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

7-20-09 Fee Assement-41.87
7-20-09 fee waiver-----41.87
7-20-09 Reverse payment-985.48
7-20-09 Forbearance Supense--985.48
7-28-09 Reverse Suspense-----985.48
7-28-09 Forbearance Suspense--54.29
7-28-09 Princial curtailment-----54.29
8-04-09 Forbearance------------54.29
8-04-09 Prinvial Curtailment--54.29
I cannot get Litton to return my calls to explain what they have done or explain anything to me.[font=Times New Roman:bb427883de][/font:bb427883de]

Like | Dislike | Share | Posted: Mon, 09/07/2009 - 11:19 | Post subject:

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

why does nt this amount show at the end of the year

Like | Dislike | Share | Posted: Thu, 12/10/2009 - 05:34

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

is it better to pay \$100 extra per month or \$500 extra every five months?

Like | Dislike | Share | Posted: Sat, 01/02/2010 - 15:16 | Post subject:

jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Hi jec,

This is something your lender will be able to clarify. You should contact your lender and ask him to explain the whole matter and let him know that you want to reduce your principal balance by paying extra money toward the principal amount. This will help you resolve the matter.

Thanks

Like | Dislike | Share | Posted: Wed, 10/12/2011 - 22:00

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

My statement shows extra payments paid, but it is not applying directly to principle as noted in the definition. So my lender shows that I paid 1 month principle and 1 month interest. I was not paying a month ahead I wanted to reduce the principtle. Is this right?

Like | Dislike | Share | Posted: Wed, 10/12/2011 - 15:50 | Post subject:

gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

joel, paying additional every month will pay down the balance faster than waiting to accummulate \$500 in the fifth month. it's not substantial savings, but savings nonetheless.

Like | Dislike | Share | Posted: Sat, 01/02/2010 - 17:52

gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

To Confused: you certainly hit that nail on the head! Your escrow account is only used for payments to real estate tax, hazard insurance and similar items. Thus, it is of no benefit to you to "pay into" the escrow. By all means, if you plan to pay extra amounts, have it applied directly to the principal balance, as that will reduce your interest costs and pay the loan off quicker.

Like | Dislike | Share | Posted: Tue, 10/26/2010 - 10:51

gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

As for UO, I suppose it will depend on the amount of money you owe on the condo, as well as what the interest rate is on your current HELOC. Of course, what limitations exist on the HELOC are also very important.

That being said, with interest rates at record lows these days, it might behoove you to look into an ordinary fixed rate mortgage loan. Keep in mind that condos are looked at more critically than other types of property and you won't get the absolute best rate available.

Like | Dislike | Share | Posted: Tue, 10/26/2010 - 10:53

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Even I haven't seen a mandatory curtailment!! You should clarify the whole matter with the broker/lender and then sign on the dotted lines.

Like | Dislike | Share | Posted: Wed, 10/05/2011 - 23:28

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

I am paying 500 per month mortgage payment. If I pay an extra \$500 on the principal each month how fast am I paying off the principal? rate is 6% 30 years

Like | Dislike | Share | Posted: Sun, 01/24/2010 - 10:59 | Post subject:

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

I have a variable rate hloc and no mortgage on a condo. Is it better to keep the rate variable or to lock it in? Is it quicker to pay off a fixed rate?

Like | Dislike | Share | Posted: Sun, 10/24/2010 - 06:36 | Post subject:

jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Hi coco,

You should contact your lender and ask for an explanation regarding this matter. It is the lender who will be able to let you know as to why they deducted the money from your account.

Thanks.

Jerry

Like | Dislike | Share | Posted: Mon, 06/25/2012 - 03:50 | Post subject:

jon.underwood.007 | Joined: September 3, 2009 07:23 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

A borrower is required to pay the scheduled P&I amount each month. In addition, a borrower can pay an extra amount to be applied directly on the unpaid loan balance. This amount is called a curtailment. It shortens the life of the loan. A few extra dollars per month can save thousands of dollars in payment of interest. Extra principal payments do not relieve a borrower from making a scheduled payment each month

Like | Dislike | Share | Posted: Tue, 09/08/2009 - 02:36 | Post subject:

annyb27 | Joined: July 7, 2009 03:58 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Mortgage Principal Curtailment â€“ Borrowers can send extra payments to reduce their principal balance. Curtailments are not a significant contributor to prepayments (typically less than .25 CPR).

Like | Dislike | Share | Posted: Sat, 07/11/2009 - 11:02 | Post subject:

annyb27 | Joined: July 7, 2009 03:58 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Principal curtailment is an additional payment paid directly against your mortgage loan's principal balance.

Like | Dislike | Share | Posted: Sat, 07/11/2009 - 11:09 | Post subject:

Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

We had never seen it listed as such on a statement - I'd always seen "additional payment on principal" on my online statements. He had stopped in at the institution because their website was having trouble, and paid in person - his next statement listed it as mortgage principal curtailment. Again, thanks - we thought that was what it was, but the difference from the normal turns scared us a little!

Like | Dislike | Share | Posted: Mon, 07/13/2009 - 16:08 | Post subject:

Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars(\$)

Fannie Mae has come up with certain instructions regarding mortgage principal curtailment. According to the new instructions, the borrower may not be given any cash back at the time of closing. If you get any cash back at the time of closing, it should be applied as a principal curtailment to the new loan. Also, you should note that the maximum amount which may be paid to reduce the principal is \$250.

Like | Dislike | Share | Posted: Sat, 08/29/2009 - 02:51 | Post subject: