Paying down principal on interest-only mortgage
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Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date
Paying down principal on interest-only mortgage JW 01-31-2008
Posted by JW on January 31, 2008, 5:57 am
A couple of questons on the fundamentals of interest only mortgages.

1. If I decide to make lump sum payments every month or so to the principal
of the loan how does that change the monthly payment?
a. Does it stay the same?
b. If not how does one figure the monthly payment? Is it just a simple
interest calculation based on the remaining liabilty?

By the way I posted this to misc.taxes.moderated by mistake.

Thanks

JW


Posted by joetaxpayer on January 31, 2008, 8:25 am


JW wrote:

> A couple of questons on the fundamentals of interest only mortgages.
>
> 1. If I decide to make lump sum payments every month or so to the principal
> of the loan how does that change the monthly payment?
> a. Does it stay the same?
> b. If not how does one figure the monthly payment? Is it just a simple
> interest calculation based on the remaining liabilty?
>
> By the way I posted this to misc.taxes.moderated by mistake.

Yes. Balance * rate/12 = payment. So any reduction to balance will
reduce the payment.

I don't see it in queue at mtm, the software should be set to reject
cross posted posts, so it's probably gone already.

You mat want to set up a spreadsheet with mortgage calculations to see
how you can pay it off over reasonable time and not get caught when it
starts to amortize for real.
JOE


Posted by jIM on January 31, 2008, 8:59 am

> A couple of questons on the fundamentals of interest only mortgages.
>
> 1. If I decide to make lump sum payments every month or so to the principal
> of the loan how does that change the monthly payment?
>  a. Does it stay the same?
>  b. If not how does one figure the monthly payment? Is it just a simple
> interest calculation based on the remaining liabilty?
>
> By the way I posted this to misc.taxes.moderated by mistake.
>

joetaxpayer was correct to my understanding (pays down principal, next
payment is principal*rate/12.

Always understand terms of the loan. Interest only is not always
interest only. Maybe loan is interest only for 10 years, then there
is a balloon payment at end of year 10. Maybe loan goes into a 20
year repayment period after end of 10 year interest only period.

Read the fine print.


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