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Is it possible to set up a 30 year mortgage where extra payments lower the monthly mortgage? Typically, extra payments go to shorten the length of the loan. All real math aside, let's say I put an extra $25,000 against the principal of my loan one month. This is enough to reduce the length of my loan to 25 years. Can I keep the time of the mortgage at 30 years but pay $300 (or however much) less per month instead? Ideally, this could be done without the cost of refinancing my mortgage.

  • 3
    This will depend on your lender and specific loan terms. – quid Jan 5 '17 at 20:27
  • @quid, is this called a specific type of loan? Is there any common terminology around this? – danjuggler Jan 5 '17 at 20:41
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    It depends on the terms. My mortgage payment is recalculated every year based on the balance at start of year, and years remaining (from original 30). So it works for me exactly as per your question, with prepayment of principal causing future payments to be reduced with no refinance fees &c. You can always ask lenders about this possibility up front. – user4556274 Jan 5 '17 at 20:45
  • @user4556274 Does your interest rate stay the same? – danjuggler Jan 5 '17 at 21:04
  • @danjuggler, no, this is on a 5/30 ARM. Good point. – user4556274 Jan 5 '17 at 21:08
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Some types of loans allow for reamortization (recasting) - which does exactly what you're talking about (making a big payment and then refiguring the monthly amount rather than the overall lifespan), without requiring any kind of a fee that refinancing does. Not every, or even most, mortgages, allow for recasting. And most that do offer recasting, may limit the recasting to a once-a-loan type of thing. So check beforehand, and make those big payments before you do any recasting. (Most banks and mortgage servicing companies may not advertise or even speak about recasting options unless you specifically ask your loan officer.)

4

That's tricky. Typically you lock in the minimum monthly payment when you close the loan. You can pay more but not less. Options:

  1. Ask for a loan modification. They may or may not go for it, but you may have a chance especially if current interests are lower than your current one and you can play the "well, than I will have to refinance with someone else" card.
  2. If you are paying mortgage insurance, the extra payment may help you to drop it.
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Typically, this is not an option, as the monthly payments are fixed. It depends on the willingness of your financing bank for such a change. You probably will have to refinance (with them or another lender); which is not a bad thing, as you even can get a lower interest rate potentially (as of Jan 2017 - this will change).

Consider too: It could be a better solution to instead invest the 25000, and use the investment returns to fill up the difference every month. Certainly more effort, but you probably come out ahead financially.

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