# Paying extra on mortgage payments **URL:** \ **Category:** In My Humble Opinion\ **Created:** [February 17, 2019, 11:52pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742 "2019-02-17T23:52:51Z")\ **Posts on this page:** 17\ **Page:** 2
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [February 18, 2019, 2:32pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/21 "2019-02-18T14:32:15Z")
If you want to see your true savings over the life of the loan find a website like [bankrate.com](http://bankrate.com) that has a loan calculator along with an amortization schedule. You can plug in the data about your loan (amount, rate, term) and the $1711 payment amount. If you scroll to the bottom of the amortization schedule it will show how much interest you will pay over the life of the loan. When you run the calculator again with the $1800 figure and check the amortization schedule you can see how much you’ll save in interest and if you cut off any time on the loan. ---
**Author:** ![ZipperJJ](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/zipperjj/32/211_2.png) [@ZipperJJ](https://boards.straightdope.com/u/ZipperJJ)\ **Post date:** [February 18, 2019, 4:33pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/22 "2019-02-18T16:33:49Z")
I’ve been paying an extra $100/mo on my mortgage and according to [this calculator](https://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx) I’m saving 6 years of paying and $30,000 in interest. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [February 18, 2019, 4:53pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/23 "2019-02-18T16:53:35Z")
I was debt free by 40 by prepaying my mortgage (and no taking out car loans and paying off my credit cards every month). I then took out a mortgage when rates were really low (like 4% fixed), and now have a $400 a month mortgage payment - but have the money invested in stock that pays about a 5% dividend on that original investment (and the tax write off on the mortgage increases that delta) ---
**Author:** ![echoreply](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/echoreply/32/3641_2.png) [@echoreply](https://boards.straightdope.com/u/echoreply)\ **Post date:** [February 18, 2019, 4:58pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/24 "2019-02-18T16:58:40Z")
> [@CookingWithGas](#): > > You have to analyze what you would do with that money if you weren’t using to pay it off early. If you can invest it and get a return that is higher than the interest rate you pay on the loan, it is a no-brainer to invest it instead of paying the loan off early. It depends on your situation, and “pay as much as you can afford” is not one-size-fits-all advice. The important thing to add to this, is that paying extra on the loan is a _guaranteed_ return. If your mortgage is at 5.25%, then you are investing your extra payments with 5.25% return. Non-guaranteed investments, like into the stock market, may beat it, or they may not. Would I have been better to have put all the money I overpaid on my mortgage in the last 5 years and put it in the market, and then cashed it out last September? Absolutely, but if I had a way to know that ahead of time I wouldn’t have to worry about things like a mortgage. Anyway, the point is diversification. Put some of your money into the mortgage for a guaranteed rate of return, some in stocks, some in bonds, some in a money market, etc. The exact proportions in each will depend on many factors outside of the scope of this thread. As far as the technical details of how you overpay? Many in this thread seem to be of the mindset that the OP is mailing in a check every month. For mine, I use the banks online payment system, and when setting up my automatic payment I specify an additional amount to be paid each month, and designate it to go towards the principle. ---
**Author:** ![Bayaker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bayaker/32/3454_2.png) [@Bayaker](https://boards.straightdope.com/u/Bayaker)\ **Post date:** [February 18, 2019, 5:11pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/25 "2019-02-18T17:11:38Z")
As others have said, you must find out exactly how your mortgage was written to handle extra payments. Fortunately we were aware of this four years ago when buying our house, and made sure before we signed anything. I think most loans are written this way now, but certainly not all. With the original mortgage company(our loan has been sold twice in four years) I stilll had to specify how much of each month’s overpayment was to be applied to the principal. That’s easy if you set it up for the same amount every month, but if you ever get a windfall and want to make a one-time payment you might need to do more than just send them the money. We’re on track to save about $55K in interest by paying an extra $600/month and will pay it off in nine years instead of thirty. We’re lucky that we live in a relatively cheap housing market, so even with the extra money our payment is just a little over half of the OP’s $1800 ---
**Author:** ![senoy](https://avatars.discourse-cdn.com/v4/letter/s/dbc845/32.png) [@senoy](https://boards.straightdope.com/u/senoy)\ **Post date:** [February 18, 2019, 6:31pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/26 "2019-02-18T18:31:34Z")
It depends on a lot of factors. If it were me, I’d put the extra 88 bucks in a separate account and use it for future unemployment. Every year and a half or so you end up with an extra months payment. In six years, you have four months of mortgage saved up should you get laid off. A few months mortgage is always smart to have in your back pocket. It depends on your interest rate though. My rate is so ridiculously low, that I’m basically paying 25 bucks a year on that 1000 dollars extra that you’re putting away. For me, that’s a pittance. If your rate is higher though, it might not be a pittance anymore. ---
**Author:** ![enipla](https://avatars.discourse-cdn.com/v4/letter/e/54ee81/32.png) [@enipla](https://boards.straightdope.com/u/enipla)\ **Post date:** [February 18, 2019, 6:33pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/27 "2019-02-18T18:33:04Z")
I did this for about the last half of my loan. I was almost making double payments. Putting all the extra towards principle. I knocked years and years off the loan and now own outright. It’s a nice feeling. ---
**Author:** ![Corry\_El](https://avatars.discourse-cdn.com/v4/letter/c/ecae2f/32.png) [@Corry\_El](https://boards.straightdope.com/u/Corry_El)\ **Post date:** [February 18, 2019, 11:43pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/28 "2019-02-18T23:43:37Z")
> [@Riemann](#): > > Well, before considering the economics, at least check to make sure that your mortgage _allows_ overpayments, and automatically gives full credit for them. Yes check, because there’s no downside to doing so. But it’s generally not permitted now for lenders to impose prepayment penalties, let alone not permit prepayment at all, on residential mortgages in the US. Per federal regulations coming out of Dodd/Frank and the CFPB since the mortgage crisis. But they were not common, on residential mortgages in the US, even before that. On US commercial mortgages they are still common, other countries I don’t know. Also as others said, the mortgage payment voucher will often have a space for additional payment of principal, which eliminates any confusion between paying this month’s and next month’s, but AFAIK the default would be to assume an extra amount is a prepayment not part of next month’s payment. As to lender attitude, it’s conditional on interest rates. If mortgage rates are rising prepayments are good news to lenders because the money can be redeployed on new mortgages at higher rates. If mortgage rates are falling it’s bad news because the money has to be redeployed on new mortgages at lower rates. But again prepayment without penalty has been standard on fixed rate mortgages in the US for a long time. The whole concept of managing them as assets is based on accurately predicting the ‘speed’ of prepayment in various interest rate environments, they melt away faster when rates are falling and more people refinance, though still melt away compared to the originally contracted payments even when rates are rising (from people selling houses and moving, dying and mortgage insurance pays it off, etc). In short in the big picture the lender doesn’t care what one mortgage does, and as was also mentioned there’s a high likelihood the owner of the mortgage now is no longer the originator/servicer anyway. ---
**Author:** ![glowacks](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/glowacks/32/5548_2.png) [@glowacks](https://boards.straightdope.com/u/glowacks)\ **Post date:** [February 19, 2019, 3:39am UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/29 "2019-02-19T03:39:01Z")
It cannot be stressed more that when considering to use free cash to pay down your mortgage that you are earning a guaranteed return on that money over the length of the loan. Risk-free 10 year rates are very roughly 3% and 30-year rates not much higher, which I’m absolutely certain your mortgage rate is at least 1 percentage point higher and probably 2 or more. The key to investing is earning the best risk-adjusted return, so the question is if you invest the money in something else whether the excess return is worth the excess risk. If the market behaves rationally, the average risk-adjusted return of all asset classes are the same, and the question is simply your risk tolerance. Only if you have some sort of inside knowledge about a privately held company that you can invest in should you think it would be possible earn you a better risk-adjusted return than paying off a mortgage whose interest rate is higher than the current risk-free rate being offered by the market. Or you could think the market will behave irrationally, and you might as well just spend the extra money on fancy restaurants that will bring you more temporary joy. From a rational perspective though, pay down your loans ASAP assuming you leave enough emergency cash and didn’t get sweetheart deals (which you can often get on car loans or credit card promotions). ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [February 19, 2019, 2:43pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/30 "2019-02-19T14:43:21Z")
> [@Musicat](#): > > I once paid off a second mortgage years early by adding a dollar or two to each month’s payment. The bank loved me. Literally a dollar or two? So up to $24 per year extra? How would that possibly pay off a mortgage \*years \*early? ---
**Author:** ![wguy123](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wguy123/32/3161_2.png) [@wguy123](https://boards.straightdope.com/u/wguy123)\ **Post date:** [February 19, 2019, 4:20pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/31 "2019-02-19T16:20:27Z")
Paid off my 30-year mortgage in 13 years. I’d lost the ability to itemize on my federal income taxes, so paying it off early was the bigger benefit by far (I think this is now true for a lot more people). My wife and I are now completely debt free and saving money at an outstanding rate. We planned on retiring at 60, but 55 is now looking doable (well, I will be 55, my wife will be 50). ---
**Author:** ![control-z](https://avatars.discourse-cdn.com/v4/letter/c/eada6e/32.png) [@control-z](https://boards.straightdope.com/u/control-z)\ **Post date:** [February 19, 2019, 4:35pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/32 "2019-02-19T16:35:33Z")
Almost certainly a good idea, assuming extra money comes off the principal. Every extra dollar you take off the principle is a dollar you won’t pay interest on for 20 or 30 years. According to this calculator, paying $88 a month extra on a $260,000 house at 3% interest for 30 years will pay off the mortgage 3 years and 5 months early: [https://goodcalculators.com/mortgage-overpayment-calculator/](https://goodcalculators.com/mortgage-overpayment-calculator/) ---
**Author:** ![Motorgirl](https://avatars.discourse-cdn.com/v4/letter/m/e36b37/32.png) [@Motorgirl](https://boards.straightdope.com/u/Motorgirl)\ **Post date:** [February 20, 2019, 5:57pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/33 "2019-02-20T17:57:32Z")
Adding my voice to the “make certain they will apply it to principal” chorus. My mortgage company will accept over payments, and if you’re paying manually via their interface you can choose to have it applied to principal or to future monthly payments. However, if I were to set up an auto-pay each month, there is no way to specify that the extra is applied to principal - they will always apply it as a pre-payment of future payments. So I log in every month and pay the mortgage that way. And yes, we did check with them and yes, that is their policy. ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [February 20, 2019, 8:15pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/34 "2019-02-20T20:15:34Z")
As has already been noted, it all depends on what your mortgage interest rate is and what your plans are to do with the money if you don’t pay the extra mortgage principle. Two and a half years ago I considered paying off my mortgage, but I had enough money in my 401k to pay it off a dozen times, and the interest rate on the mortgage was only 2.875%, so I let it ride. Since then the return on the IRA I moved my 401k to has averaged 7.1%, and I’ve got more money in there than I had on the day I retired, so it looks like the right decision in hindsight. I made sure I had at least two years worth of IRA money in cash equivalents, in my case eight 2-year certificates of deposit with one maturing every quarter. The rest is divided up 70% stocks 30% bonds. If you’ve got enough cash flow to regularly overpay the mortgage I have to wonder why you didn’t simply refinance for a shorter period in the first place? There’s a big difference in both interest rate and total interest paid over the life of the loan if you shorten the term. I was able to drop the rate by over 1.0% by refinancing to a 10 year loan in 2014. ---
**Author:** ![Dag\_Otto](https://avatars.discourse-cdn.com/v4/letter/d/439d5e/32.png) [@Dag\_Otto](https://boards.straightdope.com/u/Dag_Otto)\ **Post date:** [February 20, 2019, 9:34pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/35 "2019-02-20T21:34:34Z")
> [@Motorgirl](#): > > So I log in every month and pay the mortgage that way. Not to hijack the thread, but could you set up auto pay for the standard payment, and just log in periodically to make an extra payment to principal? The autopay would ensure you wouldn’t miss a payment, which is the reason I like using it. And paying larger quarterly or semi annual extra principal isn’t much different than making smaller payments monthly. ---
**Author:** ![eenerms](https://avatars.discourse-cdn.com/v4/letter/e/cdc98d/32.png) [@eenerms](https://boards.straightdope.com/u/eenerms)\ **Post date:** [February 21, 2019, 8:07pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/36 "2019-02-21T20:07:28Z")
Just piping in…we just paid off our mortgage.😃 we had double payments for the past ten years. ---
**Author:** ![Khendrask](https://avatars.discourse-cdn.com/v4/letter/k/3e96dc/32.png) [@Khendrask](https://boards.straightdope.com/u/Khendrask)\ **Post date:** [February 22, 2019, 4:05pm UTC](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742/37 "2019-02-22T16:05:43Z")
> [@slash2k](#): > > Anymore, at least in the U.S., the odds are fairly strong that the bank is merely acting as a loan servicer, and the bulk of the interest payments are actually going to whatever investor now owns the note. The bank therefore doesn’t care whether you pay off the loan early or not; they’ve already booked whatever profit they’re going to make on this loan. And this is frustrating. I just took out a moderate mortgage back in September, the first payment was due in November. Between receiving the check from the mortgage, and making my very first payment, the mortgage had been sold 3 times. [Previous page](https://boards.straightdope.com/t/paying-extra-on-mortgage-payments/829742.md?page=1)