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I believe you are referring to a mortgage modification. I've done those a couple of times in the past when interest rates were dramatically different than they are now. Recently our mortgage was sold to another company which doesn't allow mortgage modification or anything useful unless you are doing a refinance.
With the economy being what it is, I prefer not to to be locked into a higher monthly requirement. Sending in additional principal payments gives me more control over the situation.
That flexibility is truly is the best way to handle a mortgage because over the span that a loan is due, life is very dynamic and things happen that can affect your cash flow within a monthly period.
You never want to have to feel desperate because you are short of cash in that month and you are locked into a high monthly mortgage payment.
You can just pay the mandated lower amount without a penalty.
That flexibility is truly is the best way to handle a mortgage because over the span that a loan is due, life is very dynamic and things happen that can affect your cash flow within a monthly period.
You never want to have to feel desperate because you are short of cash in that month and you are locked into a high monthly mortgage payment.
You can just pay the mandated lower amount without a penalty.
A good emergency fund might mitigate this concern. Another option is to use an ARM (e.g. 7/1) which you'd pay down quickly, on average, but if you pay a huge amount one month and the minimum payment in another month it is fine, as long as overall you on average pay it down fast enough to not owe much by the time the first adjustment hits.
Generally the rate caps are low enough that it's virtually impossible to have payment shock if you pay off more than 50 - 60% of the balance before the first adjustment. A 7/1 works perfect if you want a payoff in 10-12 years.
Of course this requires the discipline to pay significantly more extra principal when you can, in order to allow for some "lean" months.
We always round up to the nearest $100 at least. That means our 30 year mortgage will be paid for in about 24 years {we have a low mortgage no $2500/m mortgage for us!}.
If we add $100/m we will shave it down to about 18 1/2 years.
We currently add odd amounts as we have it to shave it down further. For instance we sent in more than double the entire mortgage payment for Dec. {$1,250} and another $6,700 for March. I,too, like the idea of having a low regular payment, and being able to add the odd amounts when we want to/can/are able.
Just set up your mortgage amortization on an Excel spreadsheet. Include a column for extra payments which you enter as you go along. That's what I do, and it's easy.
If you would like me to email you a copy of my own Excel spreadsheet, PM me an email address and I will send it to you. You will need to change it up a bit to use it for yourself. Or, include your mortgage particulars (date it originated, length of term, interest rate) and I will change it for you.
A good emergency fund might mitigate this concern. Another option is to use an ARM (e.g. 7/1) which you'd pay down quickly, on average, but if you pay a huge amount one month and the minimum payment in another month it is fine, as long as overall you on average pay it down fast enough to not owe much by the time the first adjustment hits.
Generally the rate caps are low enough that it's virtually impossible to have payment shock if you pay off more than 50 - 60% of the balance before the first adjustment. A 7/1 works perfect if you want a payoff in 10-12 years.
Of course this requires the discipline to pay significantly more extra principal when you can, in order to allow for some "lean" months.
I agree with your advise but the problem usually lies in the fact that a lot of people go into getting a loan being very optimistic and ambitious and then, Wham, life hits you with a hard right cross and you then realize that your emergency fund doesn't have enough in it.
I always plan for the worst and hope for the best when I look at the future because I've learned that if it's not one thing, it's two that comes along to mess with your mind.
That's not the correct formula. Simply adding a static amount for each month won't achieve the right results. The principal payment on a mortgage changes each month for the life of the loan. Look at an amortization schedule and you will see. To double the principal payment each month requires a further calculation to determine what that would be for each month.
Very easy to do the calculation in excel by yourself at any time and any amount of principal you want to add. Here is an example:
Say loan is at 200K in February and your monthly payment Principal +Interest is X, your interest rate is "I"
A pretty good approximation is as follows.
Note: Use the cell reference to make the calculation and you are good to go. Drag this formula all the way down and you will get what you are looking for. Now you can go back and change the Additional Principal column as random as you want.
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