Paying More Today Won’t Lead To Lower Monthly Payments Tomorrow



Making biweekly mortgage payments or putting your next employment bonus toward your home loan is a great way to lower your monthly mortgage payments, right? WRONG!

While these tactics have certain benefits, reducing your monthly mortgage payments isn’t one of them. If this doesn’t make sense to you, pull up a chair! Today we will explain the benefits of putting extra cash toward your mortgage. We will also discuss your options for immediate payment relief.

Characteristics of Your Mortgage

Your mortgage is an amortizing loan. What does that mean? Here is what you need to know:

  • In an amortizing loan, your monthly payments go toward the principal and interest portions of the mortgage.
  • You’ll have a set term, usually 15 or 30 years, to pay your mortgage in full.
  • Your monthly payments won’t change unless you have an adjustable-rate mortgage (ARM). These mortgages are subject to interest rate fluctuations.
  • Although your monthly amounts stay the same, the portion of your payment that goes toward your principal balance will increase over time.

Why Make Extra Payments?

If making extra mortgage payments won’t reduce your monthly bill, why bother? If you like to save cash (who doesn’t?), don’t take these additional payments off the table. Here’s how extra mortgage payments can help put money in your pocket in the long run:

  • Extra payments might help you pay off your mortgage faster.
  • Although your future payments will be the same total amount, a higher percentage will go toward the principal balance, while a lesser amount will go toward interest.

While they don’t offer immediate relief, both of these benefits could save you thousands over the life of your loan!

Here’s What Extra Payments WON’T Do

Before entering the race to pay off your mortgage, carefully consider your financial situation. If you’re in your forever home, great! Paying off your mortgage early might be the right move. If you think you might sell in the future, proceed with caution. You don’t want more money tied up in equity than what the home is worth!

Even with rising interest rates, your mortgage is probably the cheapest debt you have. You might want to focus on paying off student loans, credit cards or other debt sources with higher interest rates than your home loan.

What if I Need Payment Relief Now?

If you need to lower your monthly mortgage payment, here are your options:

  • Refinance: While refinancing can lead to lower monthly payments, if you stick with a 30-year term, you’ll “restart the clock.” In other words, you’ll be paying off your mortgage for another 30 years beginning from your refinance closing date! You could refinance to a 15-year loan, but your monthly payments will probably increase.
  • Recast: A loan recast re-amortizes your mortgage based on a lowered principal amount. Recasting usually happens after a significant lump sum payment.

Contact Us Today!

Whether you need to reduce your monthly mortgage payment now or want to ensure you’re not giving any more money than necessary to your lender, we can help! Contact us, at MortgageDepot, today to learn about smart ways to save money with your mortgage.

Connect with one of our loan consultants today to learn more!