Does Paying Down Mortgage Reduce Monthly Payment?

Regular Monthly Payments

Making extra principal payments towards your mortgage does not reduce your monthly payment by default. The monthly payment amount is determined by the original loan terms, including the loan amount, interest rate, and loan duration.

Mortgage Recasting

If you make a large lump sum payment towards your mortgage and your lender agrees to recast your mortgage, it can potentially reduce your monthly payment. Recasting involves re-amortizing the loan based on the new lower principal balance, which can result in a lower monthly payment.

Interest Savings

Even if making extra principal payments does not reduce your monthly payment, it can still be beneficial. The extra payments go towards reducing the principal balance, which can result in significant interest savings over the life of the loan. This means you can pay off the loan faster and potentially save thousands of dollars in interest.

Refinancing

Another option to potentially reduce your monthly payment is to refinance your mortgage. If interest rates have decreased since you obtained your original loan, refinancing at a lower rate can result in a lower monthly payment. However, refinancing involves closing costs and other fees, so it’s important to consider the overall cost-effectiveness.

Sources

• Principal-Only Mortgage Payments
• Putting A Lump Sum Towards Your Mortgage Won’t Lower Your Payment
• Loan amortization and extra payments

FAQs

Does making extra mortgage payments reduce my monthly payment?

**Answer:** Not automatically. Regular extra payments typically go towards reducing the principal balance faster, but the monthly payment amount remains the same unless you recast your mortgage.

What is mortgage recasting?

**Answer:** Recasting is when the lender recalculates the loan amortization schedule based on a lower principal balance after a large lump sum payment. This can result in a reduced monthly payment.

Are there any fees for making extra mortgage payments?

**Answer:** It depends on the lender. Some lenders may charge a fee for extra payments, while others do not.

Can I make extra mortgage payments towards the principal only?

**Answer:** Yes, you can specify that extra payments should be applied to the principal balance only. This helps reduce the loan balance faster and save on interest.

What are the benefits of making extra mortgage payments?

**Answer:** Benefits include reducing the loan term, saving on interest, and building equity in the home faster.

What are the alternatives to making extra mortgage payments?

**Answer:** Alternatives include bi-weekly payments, refinancing to a lower interest rate, or making a lump sum payment towards the principal.

How much extra should I pay on my mortgage each month?

**Answer:** The amount you can afford to pay extra will vary. Even small extra payments can make a difference over time.

Should I make extra mortgage payments or invest the money?

**Answer:** The decision depends on your financial goals and circumstances. If you have high-interest debt or a low interest rate on your mortgage, it may be better to invest the money instead.