Does it not matter how long your mortgage is vs your extra principal payments

While fiddling with that I’ve found that it doesn’t matter if you have a 30 year mortgage or a 15 year or a 10 year as long as your monthly payments are the same your mortgage gets paid off in about the same time. If you get a 10 year which has $1100/month payments or a 30 year which has $600/month payments but add an extra $500/month for the principal (to give $1100/month total for the 30 year) you end up with a 10 year mortgage either way.

is this universal with mortgages, that the term isn’t as important as the total monthly payments, so that it doesn’t matter if you have a 5 or a 45 year mortgage, as long as you end up paying the same amount total each month you end up paying the mortgage off in the same time frame? I’d always assumed the shorter the time frame you picked the lower your overall interest payments but maybe its the same no matter if you get a 30 year (which starts at about 85% interest/15% principal or a 10 year which starts at about 50% interest/50% principal.

Basically what I mean is, does it not matter how long or short your mortgage term is just as long as you make extra principal payments to match the payments from a shorter term you end up paying the mortgage off in the same time frame and paying the same in interest (more or less) with either method?


Is it intentional, was it mathematically designed to be that way or is it just a coincidence.

While I intuit that this is just how things work out mathematically, I have no proof of same at hand. This works this way for all fixed interest rate loans, not just mortgages.

There are probably “smarter” things to do with my money, but I generally like to take out loans for near the generally accepted max term (30 year fixed mortgage, 5 year fixed auto loan) and then pay them off early if at all possible. Taking out say a 30 year loan, but paying off at the 15 year rate (for example) gives me a cushion or fallback position if something unexpected occurs financially. I can always stop paying the extra if needs require.

It should not come as a surprise that loans with identical interest rates get paid off at the same time when paid with the same amount of money.

None of the above. The interest applies to the unpaid balance. If you are paying the 10 year mortgage’s payment on a 20 year mortgage, then it is in effect a 10 year mortgage. Now in the real world, they give you a better interest rate on a 10 than a 20, so if you can swing the payments, you’re better off with the shorter term.

There are some hidden issues here.

Usually, you get a better interest rate when you select a shorter mortgage term.
Usually, you pay less points on that lower interest, shorter term loan.
This is by my own experience.

As Hoodoo Ulove and Yeticus Rex mention, you usually will get a better rate on a short mortgage. If you are sure that you will be able to make the payments for the life of the loan, a shorter mortage makes more sense for this reason.

If you have doubts that you will always be able to afford the higher payments, (loss of job, unexpected expenses) then taking the longer term mortgage at a slightly higher interest rate, but paying extra each payment, allows you the option of falling back to the lower required payment if you need to.

Another complciation: Some loans have pre-payment penalties.

I find it annoying that my extra payments are not taken into account immediately. If my required payment is $1,000, and I paid $10,000, I would expect that the next month my required payment would have gone down, as the interest is now applying to less principal. I don’t really get why this is, as far as I can tell, that’s just the way it is, the way it’s alwasy been done, and get used to it.

I suspect this depends on what your contract says. If the fixed point is the monthly payment (though you are allowed to pay more) then doing so shrinks the time to pay off the mortgage. If you did one in which the fixed point is the repayment time, then your payment would shrink - but you could get to the absurd situation of making a payment in pennies as you got close to zero principle after early repayment.

As for the OP, to expand on the answers already given, the only difference between a loan of tem X and a loan of term Y, Y < X, with the same interest rates is the principle payment schedule. If you add more principle to loan X to make it identical to the payment of loan Y, then the term for X becomes the term for Y. The monthly interest payments would be identical also, and less, as time goes on, than if you had stayed with term X.

Your post impies that you’re being screwed. What happens in reality is that more of you next payment is being applied to the principle and less to interest. With a mortgage amortization, the payment amount is fixed. Yes, the interest is now applying to less principle, so you’re paying the principle down faster, thus the term of the loan gets shorter. You’re being treated fairly.

Murphy’s Law:

Get a degree in mathematics. Be an active consumer, reasonably informed with financing issues. Post a stupid question to SDMB. The next morning in the shower, realize the obvious answer to your own question which flex posted.

Imagine I am doing the Chris Farley “SSSTupid!!!” move right now.

Be aware that even if you make double payments for years, the mortgage company will not let you skip a payment on the theory that you are already ahead. If you skip a payment, you are in arrears.

While this is definitely true with credit cards and other revolving charges, I’m not sure this is true with mortgages unless you specifically designate the extra payments towards principle.

Only a wise man is capable of recognizing his own stupidity. :stuck_out_tongue:

Right… but if you don’t pay off your principle with them, you’re essentially just giving the mortgage company a free loan of your extra payments until they become due.

Better to put that money in a short term easily liquidated investment in that case.

I think all but the shady mortgage companies automatically do this, no? I’ve had six mortgages with four different companies in my short life, and any time I’d paid extra, it’s always automatically credited to principle.

Pre-payment (and early pay-off penalties) were more common 10-15 years ago than now. If you see this clause in a new mortgage contract, tell them you’ll walk to another lender unless they remove both clauses on the spot.