# Paying USD 1000 towards the principal on my mortgage

1. I bought a home worth 200,000 paid 20% down, my interest rate is 4%, 30 yr fixed
2. Remaining Loan 160,000.
3. Initially, lets say I pay around 1000 USD (200 toward my principal and 800 towards my interest).(May not be accurate numbers)
4. Now the balance left on my mortgage is 159,000.

If I pay additional 1000 USD towards my principal after paying my balance due this month, Starting next month when I have make my mortgage payment, would I be paying interest on 159,000 or 158,000.

I realized through internet that the additional payments would only cut the down the 30yr term. That is, instead of paying for 30 years, I might be paying for 29 years 11 months. But there would no change in the interest calculation.

• Reducing your payment amount while keeping the same term by paying more than required is called "recasting" and can be negotiated when you get your mortgage. You can normally do it once, maybe twice, over the course of the term so the amount you use to recast should be more than \$1000! Commented Nov 15, 2019 at 13:29
• Is the recasting for the US or a different country? Commented Mar 11, 2023 at 19:07

Initially, lets say I pay around 1000 USD (200 toward my principal and 800 towards my interest).(May not be accurate numbers)

Now the balance left on my mortgage is 159,000.

This is incorrect. Your balance is now `\$160,000 - \$200 = \$159,800`.

I realized through internet that the additional payments would only cut the down the 30yr term. That is, instead of paying for 30 years, I might be paying for 29 years 11 months. But there would no change in the interest calculation.

Is that true?

No.

Every month, you'll pay less on interest, and more against principal, even if you never make extra payments.

Let's use some real numbers: \$160,000 mortgage at 4% for 20 years. Your monthly payment is \$970, and \$533 of that goes to interest. Thus, \$437 went to the principal.

So, after one payment, your balance due is \$160,000 - 437 = \$159,563.

In the second month, you'd still owe \$970, but the interest payment would be \$532, a reduction of \$1, and \$438 towards the principal.

Your balance is now \$159,563 - 438 = \$159,125.

Notice how the portion devoted to interest decreased because the principal decreased.

If you now made an extra \$1000 payment (and informed the mortgage company that it was to go towards the principal), your balance would be \$159,125 - \$1000 = \$158,125.

Thus, in your third \$970 payment, \$527 goes to interest and \$443 to the principal.

• There are differences around the world on how loans are set up. A fixed term mortgage (same principal every month) would adjust the monthly rate with a new and lower principal if an extra payment is made. An annuitized mortgage would have a fixed monthly payment, and an extra payment would shorten the total term. Whether or the default is a fixed term or annuitized loan/mortgage is not neccesarily the same from country to country, when I made mine I could choose between the two repayment schemes. Commented Nov 15, 2019 at 11:44
• As a further comment: If the loan is against a fixed interest, you usually have to pay a premium to change / shorten the repayment. Commented Nov 15, 2019 at 11:46