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Principal curtailment: Pay extra to get out of mortgage fast

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 11th Jul, 2009 10:36am
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.


Related Readings:


Posted on: 11th Jul, 2009 10:36 am
My friend's mortgage statement had a line item for principal curtailment - we're not sure what it is.
Mortgage Principal Curtailment – Borrowers can send extra payments to reduce their principal balance. Curtailments are not a significant contributor to prepayments (typically less than .25 CPR).
Posted on: 11th Jul, 2009 11:02 am
Principal curtailment is an additional payment paid directly against your mortgage loan's principal balance.
Posted on: 11th Jul, 2009 11:09 am
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!
Posted on: 13th Jul, 2009 04:08 pm
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.
Posted on: 29th Aug, 2009 02:51 am
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 Suspense adjustment----54.29
7-28-09 Princial curtailment-----54.29
8-04-09 Forbearance------------54.29
8-04-09 Suspense adjustment- 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.
Posted on: 07th Sep, 2009 11:19 am
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
Posted on: 08th Sep, 2009 02:36 am
why does nt this amount show at the end of the year
Posted on: 10th Dec, 2009 05:34 am
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.
Posted on: 11th Dec, 2009 05:06 am
is it better to pay $100 extra per month or $500 extra every five months?
Posted on: 02nd Jan, 2010 03:16 pm
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.
Posted on: 02nd Jan, 2010 05:52 pm
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
Posted on: 24th Jan, 2010 10:59 am
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
Posted on: 24th Jan, 2010 11:23 pm
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?
Posted on: 30th Mar, 2010 08:00 am
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.
Posted on: 30th Mar, 2010 08:31 am
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?
Posted on: 24th Oct, 2010 06:36 am
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