Typically when you make a manual payment on a mortgage it will give you a couple options, including “regular payment” and “principal only.” The former will go toward your next regular payment, so if your standard automatic payment is $1000 and you pay $2 manually, your next automatic draft would be $998.
If it’s applied to the interest, it takes $2 off the total because you’re always paying off the last month first. (Yes it’s predatory and that’s how mortgages work) If it’s applied to the principal it takes off $2 plus the interest that would have accrued on that $2 from the time of payment to the time you finally pay it off completely.
Unless I’m wrong. I’m not an expert. But we paid off the mortgage for our condo early (got a windfall) and that’s how I understood what I was told at the time. It’s a reason some loans have a prepayment penalty; don’t get one of those.
The fuck is the other option than putting it towards principal? It’s compound interest, no?
Typically when you make a manual payment on a mortgage it will give you a couple options, including “regular payment” and “principal only.” The former will go toward your next regular payment, so if your standard automatic payment is $1000 and you pay $2 manually, your next automatic draft would be $998.
Ok so what’s the difference between putting it towards principal vs interest?
If you don’t specify they automatically put any extras towards interest so you’re not reducing the principal.
What?? Are they somehow different? Does interest not accrue on interest?
If it’s applied to the interest, it takes $2 off the total because you’re always paying off the last month first. (Yes it’s predatory and that’s how mortgages work) If it’s applied to the principal it takes off $2 plus the interest that would have accrued on that $2 from the time of payment to the time you finally pay it off completely.
Unless I’m wrong. I’m not an expert. But we paid off the mortgage for our condo early (got a windfall) and that’s how I understood what I was told at the time. It’s a reason some loans have a prepayment penalty; don’t get one of those.
Oh so it’s just off by one month. That makes sense.