Can the extra payments be paid flexible?

[coody]

This question is regarding how to pay the extra payments. Can the extra payments be paid at any time and any amounts if there is no prepayment penalty? For example, this month it is paid on 5th at $500 but next month it will be paid on 20th at $1000? Thank you for the answer.

[efflandt]

It depends upon your loan and when regularly scheduled payments are due. If it is a conventional mortgage where interest is compounded monthly, it might not take effect against future interest before the next scheduled payment is due.

If it is something like a HELOC, that compounds interest daily, it may reduce future interest from the time it is credited to the account. I currently have what is effectively a 1st lien HELOC with fixed rate option and no prepayment penalty (includes no fee variable HELOC that can borrow from paid principal). But I chose to invest in my bank instead of paying down principal (direct stock purchase with dividend reinvestment) since that might provide a better after deduction/tax return and a source of emergency funds (better than using variable HELOC).

Regardless, you should make it clear with any payment what part of it is to be applied against a scheduled payment or principal. Extra payments against principal (when there is no prepayment penalty) can reduce future interest to reduce the last payment or shorten the number of payments. But paying down principal early does not get you out of required scheduled payments until principal is fully paid. So you should have something reserved that can be easily liquidated for emergencies in case you run short of cash.

[coody]

Yes, I intend to apply for the conventional mortgage. Is it possible I can request in advance to pay the prepayments at any time and any amounts towards to the principal, which will take immediate effect against the future interest as soon as the extra payment is entered by the lender?

[pojo2]

Originally Posted by efflandt

Regardless, you should make it clear with any payment what part of it is to be applied against a scheduled payment or principal.

It is a good idea to issue two checks clearly labeled as an extra payment toward principal.

Your actual monthly payment is not going to change.

[Samm1970]

Yes, I intend to apply for the conventional mortgage. Is it possible I can request in advance to pay the prepayments at any time and any amounts towards to the principal, which will take immediate effect against the future interest as soon as the extra payment is entered by the lender?

I'm not sure if I'm getten your question. But here's how it works. Any extra principle you pay whether it's on the 1st of the month or the last day of the month will decrease the amount of the interest you pay over the term of the loan the same amount. So the interest will come off the back end of the loan. In other words, you'd pay it sooner then scheduled. As long as your note does not have any provisions against principle curtailments, you don't need to request anything. Just make the extra payments and they'll be applied upon receipt to principle, reducing the overall interest you pay. As mentioned, clearly identify on your check the purpose of the payment.