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Additional Details
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aamer_84 | How does paying down a huge amount on my mortgage affect my payments? |
If i buy a house for 300k, put down 30k and get a loan/mortgage for the remaining $270k . if 1 year later
i pay off a big amount of about 50-60k on the loan, will that help my loan payments at all?
I know some of it will depend on my loan agreement etc but what would be the difference if i pay the 50k before closing the loan or later at some point.
I am asking this because i am debating my options about purchasing a new home. If i don't sell my old house by the time i close on new one, I can sell it later and then use the equity money from old house to pay off the new house.
If i understand it right, paying off the 50k later down the road will bring down the principal due and in-turn lower my interest payments and thus lower the total payment due.
Is that true? or am I seeing this wrong?
Additional Details
my other option would be refi my current home , get the cash out and use that cash(50k) to pay the downpayment for new house. and then sell the old house few months later when i am moved into my new house.
so if i REfi with cash out, would that increase my payment or leave it as is? |
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ananamas
 |
If you make a large principal payment on a standard mortgage, it won't reduce your monthly payment at all - you'll just need to make fewer monthly payments until the loan is paid off.
If your goal is to reduce the monthly payments, my suggestion is to buy the house with two loans: a regular first mortgage, and a second mortgage (or equity loan) of an amount small enough that you can pay off IN FULL with the large check. Then, your monthly payment would go down, because instead of getting a bill for 1st and 2nd mortgage, you would only have to pay the 1st mortgage as the 2nd mortgage would be paid off.
So in your case I might say, buy that $300k house, get a $220k first, and $50k second, and put down $30k. Then when you get $50k you pay off the second entirely. |
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Conducting my own survey
 |
Unless you refinance it your payments will remain the same on a fixed loan. You will have it paid off sooner than the 30 years or whatever length of your loan. |
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Doctor Deth
 |
it will shorten the loan/number of total monthly payments you'll have to pay, plus you'll save big time on the mortgage interest over the life of the loan and don't listen to the morons that say you shouldn't do that - why pay a 1000 monthly mortgage payment that is 800 in interest and you only get a 200 tax reduction-25% tax bracket ($800 net out of pocket cost), when once you pay off your mortgage-early, you get to keep all $800 of that net monthly payment and invest it or spend it - I'll take $800 over $200 any day |
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duffie_1999
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You don't seem to understand the most basic principles of mortages. When you make a large downpayment, your monthly payments will go down. If you make a large prepayment during the loan the interest rate does NOT go down, but the length of your loan will. You could cut off many years by making that 50-60,000 payment during the loan. |
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kadel
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Check the mortgage agreement, but most allow you to send a check stating that it is to be used to prepay the principal only. That will decrease the length of the loan and thus save on the interest. |
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Teri G
 |
Doctor Deth is correct. You only reduce your interest and the length of your loan when you pay extra. If you do so in the beginning, you reduce more interest than principal. If you wait til later, it's the other way around as the interest-to-principal ratio gradually shifts to less interest-more principal but if you have a 30 year loan, that is way down the road. For example, if you have a $250,000 mortgage for 30 years at 7% and you pay an additional $100.00 per month, you will reduce the length of the loan by 4 year and 7 months and save approx. $66,777.00 in interest! I provided a link below with different topics and one has a calculator under 'what if I pay more every month' - check it out using your current loan info and you can see the breakdown and everything. Oh and whatever you do, DO NOT get a balloon or ARM mortgage. Find a good FIXED rate and lock in and go with that. Your mortgage amount will stay the same for the life of the loan with no surprises later on and with the economy the way it is...don't get suckered into thinking an ARM is good because the first year is only at 4.99 or something. It could wind up over 10% for the rest of your term and trust me...you don't want that. With property taxes as high as they are in most of this country already, your mortgage payment will change enough just from your escrowed tax payments (if you escrow your taxes in with your mortage that is) and that's bad enough. Good luck! =D |
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Howard B
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Here it is...
Divide your interest rate by 12 and plug these numbers in.
P = Principle amount
N = Number of months (i.e. 30 yrs x 12 = 360)
i = monthly interest rate
A = Annuity paid for capital recovery
A = [(i(1+i)^N / ( (1+i)^N -1 )]
A is your monthly payment. P is your principle investment.
If you make a down payment, the only thing that changes is the principle amount. This lowers your monthly payments.
Just a little math people - plug it into your scientific calculator and your golden.
This is without points. |
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TM
 |
It's not true if you have a fixed loan. After you pay $50K, your currently mortage amount is the same but it will shorten the loan year. Meaning if your loan is 30 years fix, you will pay in 15/20 years.
Why not save the money for a downpayment for your new home? |
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frak1a12345
 |
You are wrong I think--it depends on what you mean by the 'total payment due'. Paying later will result in an earlier loan payoff; i.e the note will become a 24 year note(it depends on the size of the additional payment) instead of 30 years. The size of the monthly payment will not change. Making a larger down payment will lower the size of the monthly payment but will not shorten the length of the note. As a small aside, putting up a larger down payment may qualify you for a lower interest rate--ask about it. |
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David S
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Banks and loan companies set their rates at a given figure that reflects what they need too make a profit. If you do pay a large payment in a year it will help by reducing the period that you actually pay intrest on the loan where if you put a larger amount down it will reduce the amount that you have too borrow in the first place and cut down on the payment amount. The one bit of advice that I would give you is too get a fixed rate loan. That way your payments remain constant throughout the life of the loan. You can also cut down the total ammount that you pay by making extra payments whenever possible unless your loan contains a pre payment penalty clause which some do. Adjustable rate loans are responsible for the high forclosure rate that is now happening as adjustable rate loans usually go up several times during the life of the loan until the borrower is no longer able too make the higher payments and looses their home. This is why getting a fixed rate loan is so important. It is also important too understand that a large % of the intrest paid on a loan is paid during the first few years of the loan. This is so that mortgage companies get their investment back quickly and do not loose the intrest that their own money would bring them. Either a large down payment or large lump payment are excellent ways too lower what you actually pay on a mortgage provided that you do not have a pre-pamyent clause in the mortgage. Bof A and country are currently offering a mortgage with no closing costs or fees which will also lessen the overall amount that you actually end up paying.. Do not except a loan with a pre-payment clause because they are nothing but a loan company game too insure that they get the total amount of the intrest on their loan. A typical loan will cost several hundred thousand dollers over the length of the loan. |
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jpschnei
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It will lower the amount of interest you'll be paying, but it won't change your loan payments. The interest savings will show up in the form of a dramatically shortened payoff period. Paying down a 30 year $270k loan by $50k will cut about 10-11 years off your repayment period.
The other thing paying your mortgage down that much will do is eliminate private mortgage insurance (which covers the bank, should you default on your mortgage). Once your loan balance falls under 80% of the current value of the home, your lender has to remove it within 12 months (or within 30 days, if you specifically request it).
Other than that, if you want to lower your payment, you'd have to refinance. |
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