I have $400.00 extra each month to put toward my mortgage. Is it better to divide it up and make three separate additional principal payments during the month ($133.33 each time) or is better to pay the $400.00 additional principal all at once, each month when the mortgage payment comes due? (I am VERY disciplined, no need to worry that I won't do it faithfully.) I'm trying to reduce the interest as quickly as possible. Thanks in advance.

  • Pls consider adding a country. I am in US, and am aware that banks have different processes in other countries. – JTP - Apologise to Monica Oct 31 '17 at 13:51
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    Country is very important - in Switzerland, banks charge a penalty if you pay early. The penalty works out to be exactly as much as you thought you'd save by paying early... – Oscar Bravo Dec 19 '19 at 8:48
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    For context, if you had a 30-year mortgage of $200,000 at 3%, the cost of postage to mail the extra checks early would far exceed what you would save in interest compared to just including the money with your regular monthly payment. (Over the course of a week or two, you'll barely notice the difference in interest that accumulates on $200,000 versus $199866.67) – chepner Nov 18 '20 at 15:48
  • Expanding on chepner's answer: With his numbers your first $133 check saves 22 cents, the second saves 11 cents. It's simply not worth bothering with at home mortgage levels. – Loren Pechtel Nov 18 '20 at 20:32

It's highly likely that your bank would not be able to apply a prepayment at a time different from the regular payment.

At the moment I make my payment, on 10/31, I have no accrued interest. So I pay down some principal. But If I randomly send money on 11/15, they won't apply it to the principal as it's less than the payment due.

Even if they did, it would make very little difference. Make one prepayment on the same payment ticket as the monthly mortgage payment.

  • When I recently refinanced, I sent a $10 test payment a couple of weeks early just to ensure the new biller in my on-line banking was set up correctly. It was initially considered "unapplied", but was applied to principal the next day. It's not clear what they would have done had I not made my first scheduled payment on time; perhaps reclassified the money to "unapplied" again until a full payment was received? – chepner Oct 31 '17 at 2:01
  • No, they would ding you for paying late and slap a fee on it. That’s what banks make a living from; it is hard to make big profit on people that pay on time. – Aganju Oct 31 '17 at 2:06

If the interest would be calculated daily, it would be best to pay as soon as you have the money; the earlier the better.

However, the bank might or might not respect your earlier payments as such; you should contact them to find out if they will do so.
Also, make sure to mark extra payments as ‘principal only’, or they might just ‘put them aside’ until your next payment is due, and you would lose any advantage from it. Keep in mind that making an extra principal payment will not relieve you from paying the full normal rate when due.

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