Joey Tightlips

04-02-2009, 12:40 PM

I'm confused about how banks handle extra mortgage payments. For this example, lets say I have a fixed $100,000 loan for 15 years at 5%. I understand that at the time the mortgage was issued, they can figure out the interest over the life of the loan with compounding and say it comes out to a $1000 a month payment. Now lets say every year I've been taking my annual work bonus of $5000 and applying it directly to principal (I've been doing this for 3 years in hopes to pay off the house well ahead of 15 years).

The thing I don't understand is how the extra payments affect the loan. Do they lower the monthly payment to account for the new, lower principal and interest amounts? If so, at what point would they adjust? (end of year? monthly? at the time of payment?) Or does the monthly payment amount stay the same with the life of the loan shortened. If this is the case, how can I tell how many months I've saved off the life of the account by making the extra payments?

While the numbers are not exact, this is basically the situation I'm in. I have been making extra payments but my monthly amount is no lower than when I started. The confusing part is that my taxes and insurance are rolled up into the mortgage so it is very hard to say for sure where the extra money is going. I can see that my remaining prinicpal is well below what it would have been without the extra payments. However I have seen nothing in my statements to signify that I'll be done with loan ahead of schedule (I also don't see an online option to give me a new amortization schedule).

I hope this makes sense. Any light you can shed on this is appreciated.

The thing I don't understand is how the extra payments affect the loan. Do they lower the monthly payment to account for the new, lower principal and interest amounts? If so, at what point would they adjust? (end of year? monthly? at the time of payment?) Or does the monthly payment amount stay the same with the life of the loan shortened. If this is the case, how can I tell how many months I've saved off the life of the account by making the extra payments?

While the numbers are not exact, this is basically the situation I'm in. I have been making extra payments but my monthly amount is no lower than when I started. The confusing part is that my taxes and insurance are rolled up into the mortgage so it is very hard to say for sure where the extra money is going. I can see that my remaining prinicpal is well below what it would have been without the extra payments. However I have seen nothing in my statements to signify that I'll be done with loan ahead of schedule (I also don't see an online option to give me a new amortization schedule).

I hope this makes sense. Any light you can shed on this is appreciated.