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Home >> Lending >> Home Mortgage
Paying an Amortized Loan
Is it possible to pay extra principle to the front of an amortized loan in order to push the payment schedule out farther and pass less interest?
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 Many lenders will accept partial payments for paying ahead. Some borrowers used to make the scheduled payment this month, and add to that the principal portion that shows on the amortization schedule for the next month. These pre-payments will pay a mortgage off much sooner, and will save you a lot of interest because you will have less of the lender's money, for a shorter period of time.
If you had a 15 year mortgage (180 payments) for $75,000 at 6%, your monthly payment would be $632.89. Some quick work in Excel tells me that if you paid the next months principal that was scheduled, with this month's payment, your interest would be $20,944.81 instead of the $38,920.67 that would have been scheduled. You would have the loan paid off at 99 months, instead of 180. These numbers are approximates, but a very close and give you the idea of what would happen.
You need to ensure that your lender will accept a partial payment, if that is what you will be making. If your payment is $500 and you pay $1,000, that shouldn't be a problem as those are two full payments. If you have escrows, that shouldn't be required on the second payment unless you don't expect to make that payment in the month it is due. The idea here is to pay ahead and still pay each month. Some lenders would apply such a payment as this month and next month's payment, with you due your next payment in two months. Some lenders apply it to this month's payment, and to principal, meaning you are due next month's payment in 30 days.
Published on BankingQuestions.com 10/01/09
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