A PRIORI ABANDONMENT ABATEMENT ABSENTEE LANDLORD ABSORPTION RATE ABSTRACT OF TITLE ABSTRACTION METHOD  ACCELERATION CLAUSE ACCELERATED DEPRECIATION ACCEPTANCE ACCESSORY BUILDING ACCRETION ACCRUED INTEREST ACQUISITION ACRE ADJUSTED COST BASE ADMINISTRATOR AD VALOREM ADEQUATE PUBLIC FACILITIES ORDINANCE ADDITIONAL PRINCIPAL PAYMENT AMERICAN SOCIETY OF APPRAISERS  ANNUAL PERCENTAGE RATE (APR)

ADDITIONAL PRINCIPAL PAYMENTS

Additional principal payments on a conventional fixed-rate mortgage reduce the principal balance but don't reduce the required monthly payment. A conventional mortgage is self-amortizing, meaning the monthly payment covers both the interest expense and the repayment of principal. Each monthly payment is split into two component parts, interest expense and principal repayment. Additional principal payments change the dollar amounts going toward principal and interest in subsequent mortgage payments, because lowering the outstanding loan balance reduces the monthly interest expense. The payment stays the same, but the amount going toward principal increases, reducing the length of the loan and the total interest expense. The table below shows a comparison between a 30-year fixed-rate mortgage with no additional principal payments, a mortgage with one lump-sum additional principal payment and a mortgage where a small amount is added to each monthly mortgage payment.     Conventional 30-year fixed-rate mortgage One-time additional principal payment With monthly additional principal payment Loan amount: $ 150,000 $ 150,000 $150,000 Loan term (months): 360 360 360 Interest rate: 6.25% 6.25% 6.25% Mortgage payment: $ 923.58 $923.58 $923.58 Additional principal payment: $0 $1,000.00 $20.00 Total payments: $ 332,487 $327,130 $319,696 Interest expense: $ 182,487 $177,130 $169,696 Life of loan (months): 360 354 339 Life of loan (years): 30 29.5 28.25 In this example, a $1,000 one-time payment reduced the life of the loan by one-half of a year and reduced interest expense by more than $5,000. Paying an extra $20 per month shortened the loan by 1¾ years and saved more than $12,000 in interest expense. Decide what you are able to do in your monthly budget, and use the calculator to see how it impacts your loan. If your goal is a lower monthly mortgage payment, additional principal payments won't help. But if the goal is to pay off your loan early, it's easily accomplished.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate and Mortgage Terms

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