If you were lucky enough to get a raise earlier this year, or found yourself in possession of a one-time lump sum, you may have asked to have that extra amount applied directly to your mortgage. If you have a relatively new mortgage, you may be wondering why the interest portion of your monthly mortgage payment is not noticably declining by now.
The reason is that the interest portion of your payment is calculated on the outstanding balance of your mortgage which, especially in the early years, makes up a significant portion of your monthly payments. As your mortgage term progresses and your principal starts to shrink, the amount of money that goes directly towards the principal increases while the amount that goes toward the interest declines.
Any time you make extra payments, they go directly toward reducing your overall principal balance, and with that lower principal you'll pay less in interest overall and shave years off your mortgage.
Please ask for an example, based on any extra amount you may be able to put toward your mortgage on either a one-time or a monthly basis, of how much time AND money you could save!
From The Shamez Virani/Virani Team August 2016 Newsletter - Courtesy of Market Connections Inc.