Posted on: 03rd Jun, 2010 07:27 am
whether I send my payment 5 days early or 5 days late my mortgage company applies Principal and Interest based on the amortization schedule produced at closing. Am I fooling myself into thinking I am better off sending my payments in a week early? Wouldn't the interest portion be reduced for early payments and conversely increased for late payments?
That's not how it works, dart. Your ending principal balance after you've made your payment is used to calculate the amount of interest charged the next month, and is based on a 30-day month, typically. The only way in which you'll notice a reduction in the interest charged, relative to the amortization schedule, is to make a principal curtailment (payment straight to principal) over and above your regular payment. In other words, if your payment is $2000, pay $2100 and state that the extra $100 is to be applied to your principal balance. That will reduce the interest calculated for the following month, and so on.