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If I Pay More Than My Monthly Payment On My Mortgage, How Is It Applied?

By Kevin Landis

If I pay more on my monthly mortgage, how is it applied? Can you pay off your mortgage early without penalty? How can you pay down a mortgage fast?

When you pay extra on your mortgage you must inform the lender that you wish the extra amount to be applied to your principal amount. Do not assume that they will automatically apply the amount to your balance. It is common practice that the lender will apply any extra amount to your next month’s premium instead of the principal balance. Lenders make their money off of interest. They make more interest when your principal is high therefore; it is never in their best interest to put extra money towards the balance.

Can you pay off your mortgage early without penalty?

Most mortgages will allow you to pay off your balance without penalty if the mortgage is over three years old. Some will allow you to pay it off the very next month. If you intend to pay off your mortgage early make sure you are aware of all the conditions attached to early pay off. Some of the high risk lenders will impose a steep fine against your mortgage if you pay off or refinance your mortgage before an allotted time has passed.

How can you pay down a mortgage fast?

There are a few ways to pay off your mortgage faster than the total length of your loan. Paying on your loan every two weeks can reduce the length of a 30 year mortgage by 8 years. Split your monthly payment in half; add some extra money to the amount and pay every two weeks. This adds up to two extra payments a year on your mortgage which reduces your overall debt. Another thing you may try is adding an extra payment every other month. While more costly to the consumer, this amount applied to your mortgage principal will cut your loan time in half.

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1. What Is Included in My Monthly Mortgage Payment?
2. How Do I Calculate a Monthly Mortgage Payment?
3. What Are The Benefits Of An Accelerated Mortgage?
4. Do All Mortgages Have A Pre-Payment Penalty Rider?
5. How Can I Pay Off My Mortgage In Half The Time?