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I recently began a 30-year fixed rate mortgage on my new house on April of 2020. The maturity date for this mortgage was then 04/01/2050. In their website, they had an amortization schedule with adjusted payments page wherein you can enter hypothetical principal-only payments and see how that affects the maturity date. In this page, I entered $7500 one time payments once a year to see what that would do, since I was to receive this sum this year from tax refund and work-related bonuses.

It was very exciting to see that if I paid ONE principal-only payment of $7500 once a year, my maturity date will drop from 04/01/2050 to 04/01/2035. That is reducing my loan down by 15 years! I was excited about this and did this last week. Now here are my questions:

  1. Since a $7500 payment once a year drops 15 years in my loan life, does this not mean that for each $7500 payment, my maturity date should drop by 1 year? I am usually very good at math but every time I try to find this, my brain does the static no-signal image in my head.
  2. If this is true, my maturity date right now should be showing as 04/01/2049, shouldn't it? Why do I still see my maturity date as 04/01/2050?
  3. I don't see the page where I was able to calculate hypothetical scenarios anymore. Is it possible that the mortgage company has decided to penalize additional principal only payments with interests as well, and hence retaining my maturity date as the same, since I technically still owe the interest for this principal-only payment?
  4. My loan is a 3.25% FHA loan in the US with no special circumstances. Shouldn't this mean that there should be no penalties on paying the loan off early and that principal-only payments shouldn't be charged interest? Or should I call and yell at the lender to find out what is going on here?

I am confused and worried that I just threw away $7500 at this loan for it to do nothing for me. Any assistance will be appreciated.

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  • When you overpay on a loan it can be used in one of two ways: to bring in the end date (keeping the monthly payments the same), or to reduce the monthly payments (keeping the end date the same). You would need to check your loan paperwork to determine which one applies in your situation - my lender lets me choose for each individual overpayment, but that might be very unusual, I don't know. If you can't work it out from the paperwork, call and ask (not yell) the lender what has happened.
    – Vicky
    Apr 3 at 17:58
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tl;dr: if you see your loan balance has decreased by the amount of the additional payment, then your additional payments are working as intended. Don't worry if the maturity date is unchanged.

You must make sure that it is considered additional principal payment. Call them and make sure it gets adjusted if it isn’t.

Otherwise, the bank might consider it ‘pre-payment of your next so-many monthly rates’, and just put it aside for that without giving you any benefit. If you think that is a silly interpretation of a large payment, I agree, but it’s allowed and obviously advantageous to the bank, so they sometimes try to do it.

It would give you 15 years off if you prepay that much every year, but the relationship is not linear.
Your first extra payment will save you interest for that amount for the remaining lifetime; your second extra payment will save your interest for a shorter lifetime – because the lifetime of the mortgage is already shorter from the first extra payment. So the effect becomes ever smaller (but still good for you).

Update: just to mention, mortgage companies often don't show a different maturity date when you prepay principal. The date shown is supposed to be the 'original maturity date', and they don't bother to update it. You basically have to do your own math if you want to know when you are done. Rest assured though that the mortgage will end earlier if you prepay principal.

Anyway, it is a good idea to pre-pay, and you should continue doing it when you can!

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    The interpretation is not that silly. Banks can get pretty much into trouble by misestimating how people pay off their mortgage.If the mortgage lasts only 15 years instead of the planned 30, that is a lot of lost profit to the bank (and in my opinion it begs the question why the OP was fixing for 30 years and paying additional interest if he intends to pay back in half of the time. Fixing for 15 years seems like a more reasonable choice)
    – Manziel
    Apr 4 at 17:24
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    Income situations may change. Maybe when signing up, he couldn't afford the higher payments. Also, pre-payments are voluntary, a 15-year mortgage asks for mandatory payments.
    – Aganju
    Apr 4 at 17:59
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    I deleted my answer and merged in my first paragraph to sum it all up in one sentence. Feel free to revert if you don't like it.
    – TTT
    Apr 4 at 20:05
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    @Aganju exactly. I just couldn’t afford the high payments of a 15 year loan and I underestimated how much bulk amounts I’d received on a yearly basis. This seemed like a good decision; instead of buying more nonsensical possessions, solidify the one big investment. Apr 4 at 20:37
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    The additional $7500 payment is reduced from my principal balance. They specifically have principal only, escrow only, and insurance only payment options. So they don’t seem to want to make this payment mean nothing for me. I’m hoping that if I continue to make these payments it will help me in the long run in closing this loan sooner. Apr 4 at 20:40
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I suspect that they're showing the maturity date as it is specified in the original mortgage, because 1) that's a legal document; and 2) it's easier to code their web site that way, rather than adjusting things every time you make an extra payment.

Take things to the limit, and assume you're paying off the mortgage in full (as when you sell or refinance). That doesn't change the maturity date of the loan, it just means you paid it off early.

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