How to Adjust Your Mortgage When You Pay Ahead
As your monthly mortgage payments consist of both the principal outstanding as well as the interest rate, paying an extra amount on your mortgage may reduce your monthly payments each month. This is because interest is charged on a smaller principal. You should always check with your loan provider before paying off a mortgage early, however. With some mortgages, it may make no difference as extra payments are simply put toward future bills.
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Instructions
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1
Subtract the extra payment made on the mortgage from the principal balance outstanding at the end of the month. This will give you the new principal outstanding on the mortgage. Call this result "A."
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2
Divide the mortgage's interest rate, in decimal terms, by 12 to obtain the monthly rate. For example, if your mortgage's APR was 3 percent, your monthly rate would be 0.0025 percent. Call this result "m." Add by one, and raise to the power of the number of monthly payments left. Using the same example, if you had 36 monthly payments left on the mortgage, your result would be 1.1023, rounded to the nearest ten thousandth. Call this result "i."
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3
Multiply "i" by the monthly interest rate. Call this result "B."
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4
Subtract one from "i." Name this result "C."
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5
Multiply "A" by "B" and divide by "C." This will give you your new monthly mortgage payment, which will be lower than your old monthly payment.
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Tips & Warnings
Contact your bank and let them know that you wish to make an extra payment on your mortgage for a particular month. This extra payment should be added to the principal. If your mortgage is fixed-rate, then your monthly payments will normally be equal each month. Thus, extra payments tend to be taken off next month's payment. This ensures that the bank does not lose out on payments. You should thus ensure that extra payments are taken off the principal. Some mortgage accounts do not allow this without incurring a penalty.
