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- Extra payments affect the principal directly and have little to do with your monthly payment.
Does it Matter When I Make an Extra Mortgage Payment?
Making an extra mortgage payment is something that many Americans are looking at. Once the balance of their loan goes down, capitalizing on the best interest rates will become easier. Also, if they don’t have any prepayment penalties to worry about, it makes sense to make extra payments if you want to own your home more quickly. The question I hear from those thinking about or planning on making additional mortgage payments is, "Does it matter when in the month I make an extra payment?"
The answer to this common prepayment question is no. The reason why is that an extra payment goes directly towards the loan principal balance and has little to do with your monthly payment. The only real effect it will will have is to reduce the amount of months you will have to make payments. Since the loan does not re-amortize, your payment will remain the same over the life of the loan.
When is the Best Time to Make an Extra Payment?
You can make an extra mortgage payment whenever it is the most convenient for you. I recommend making it on the same day that you make your regular mortgage payment. Remember to check that your extra mortgage payment(s) have been credited directly to the loan balance. When remitting payments you should make a note in writing that you want the extra money to go directly to paying down your principal balance.
The truth is that for many homeowners in today’s economy making extra mortgage payments may be the key to being able to refinance current loans and take advantage of very low interest rates.