Question about mortgages

[Argo]

Do mortgage lenders allow you to make partial lump sum payments throughout the lifetime of the mortgage? Hypothetical situation:

You put 20% down, finance 80%.
Several years later you want to put another 20%.

What happens at this point? Do you need to refinance or can you simply pay the 20% and the mortgage company recalculates the ammortization tables?

 

[QED]

Unless you have a prepayment penalty, you can made any additional payments towards principal as you'd like.

However, they DO NOT generally re-amortize the mortgage after an additional principal payment. Unless your mortgage is exotic (i.e. interest only payments or something else somewhat of of the norm), your payments will remain exactly the same.

 

[Argo]

So then what happens then after additional principal payment? Does your term length get shortened?

 

[Dirigible]

Originally posted by: Argo
So then what happens then after additional principal payment? Does your term length get shortened?

Yes.

Edit for more info: if you have a regular 30-year fixed and want to prepay a bunch and lower your payment, you refinance, borrowing just enough to pay off your old mortgage. Because the principal is lower, you pay less per month. However, there are fees involved, and you may not be able to get as good a rate as you had before, so you can't count on this being a good option.

 

[mshan]

It may depend on actual terms of your mortgage, but sometimes extra payment is viewed as extra principal payment and you don't get charged mortgage interest that month.

Monthly payment is the same, but overall term of mortgage may be decreased.

That being said, mortgages are often viewed as good debt because after tax deduction interest rate may be fairly low and collateral (i.e. home) historically has at least appreciated at rate of inflation over time.

If you have high interest credit card debt, or if you haven't at least taken advantage of a company match in your 401K, that may be a smarter move than paying down mortgage early.

It's all a matter of relative (after tax) rate of returns.

 

[QED]

Originally posted by: Argo
So then what happens then after additional principal payment? Does your term length get shortened?

Technically, no... you term never changes until the loan is paid off completely.

But realistically, the day you pay off your loan will come sooner so your effective term will have been shortened.

 

[lykaon78]

I over pay on my mortgage every month so at the end of the year I'll have made an extra payment. The principal is reduced by the amount of over-payment. I would assume that if you sent a $20,000 check instead of a $1000 check the same rules would apply.

QED is right too.