Posted on: 11th Jul, 2009 10:36am
Principal curtailment refers to making extra payments towards a mortgage debt to pay it off faster. The additional payments are applied towards the principal balance on the loan. The more extra payments you make, the faster the principal balance on the mortgage reduces. This helps you save a lot of money in interest payments over the entire life of the loan.
Principal curtailment - An example
Let's say,
The principal balance on the mortgage = $100,000
The term of the loan = 30 years
Interest rate = 5%
The monthly payments on the loan = $536.82 or $537 (approx.)[Using the FRM Calculator].
The number of payments it takes to pay off the entire loan = 12 x 30 = 360
Now, let's assume;
The extra payments towards principal = $100 per month.
The total money saved in interest over the life of the loan = $30,531.66. [Using the Mortgage Payoff Calculator]
The number of payments it will take to repay the loan = 256.
So, with an extra payment of $100 per month, the entire mortgage will be paid off in (256/12) or 21 years 4 months. This means it will take you almost 8 years and 8 months less than the scheduled time (30 years) to get rid of the mortgage liability.
The principal balance on the mortgage = $100,000
The term of the loan = 30 years
Interest rate = 5%
The monthly payments on the loan = $536.82 or $537 (approx.)[Using the FRM Calculator].
The number of payments it takes to pay off the entire loan = 12 x 30 = 360
Now, let's assume;
The extra payments towards principal = $100 per month.
The total money saved in interest over the life of the loan = $30,531.66. [Using the Mortgage Payoff Calculator]
The number of payments it will take to repay the loan = 256.
So, with an extra payment of $100 per month, the entire mortgage will be paid off in (256/12) or 21 years 4 months. This means it will take you almost 8 years and 8 months less than the scheduled time (30 years) to get rid of the mortgage liability.
Does principal curtailment reduce monthly payments?
Principal curtailment reduces the principal balance on the loan. It does not lower the monthly payments. But when you make extra payments, the principal balance gets reduced quickly, meaning an early payoff and savings in total amount of interest over the life of the loan.
Related Readings:
My friend's mortgage statement had a line item for principal curtailment - we're not sure what it is.
Mortgage Principal Curtailment – Borrowers can send extra payments to reduce their principal balance. Curtailments are not a significant contributor to prepayments (typically less than .25 CPR).
Principal curtailment is an additional payment paid directly against your mortgage loan's principal balance.
We had never seen it listed as such on a statement - I'd always seen "additional payment on principal" on my online statements. He had stopped in at the institution because their website was having trouble, and paid in person - his next statement listed it as mortgage principal curtailment. Again, thanks - we thought that was what it was, but the difference from the normal turns scared us a little!
Fannie Mae has come up with certain instructions regarding mortgage principal curtailment. According to the new instructions, the borrower may not be given any cash back at the time of closing. If you get any cash back at the time of closing, it should be applied as a principal curtailment to the new loan. Also, you should note that the maximum amount which may be paid to reduce the principal is $250.
7-20-09 Fee Assement-41.87
7-20-09 fee waiver-----41.87
7-20-09 Reverse payment-985.48
7-20-09 Forbearance Supense--985.48
7-28-09 Reverse Suspense-----985.48
7-28-09 Forbearance Suspense--54.29
7-28-09 Suspense adjustment----54.29
7-28-09 Princial curtailment-----54.29
8-04-09 Forbearance------------54.29
8-04-09 Suspense adjustment- 54.29
8-04-09 Prinvial Curtailment--54.29
I cannot get Litton to return my calls to explain what they have done or explain anything to me.
7-20-09 fee waiver-----41.87
7-20-09 Reverse payment-985.48
7-20-09 Forbearance Supense--985.48
7-28-09 Reverse Suspense-----985.48
7-28-09 Forbearance Suspense--54.29
7-28-09 Suspense adjustment----54.29
7-28-09 Princial curtailment-----54.29
8-04-09 Forbearance------------54.29
8-04-09 Suspense adjustment- 54.29
8-04-09 Prinvial Curtailment--54.29
I cannot get Litton to return my calls to explain what they have done or explain anything to me.
A borrower is required to pay the scheduled P&I amount each month. In addition, a borrower can pay an extra amount to be applied directly on the unpaid loan balance. This amount is called a curtailment. It shortens the life of the loan. A few extra dollars per month can save thousands of dollars in payment of interest. Extra principal payments do not relieve a borrower from making a scheduled payment each month
why does nt this amount show at the end of the year
Hi,
The extra payments you make on your mortgage are applied against the principal and helps pay off the loan faster. I think it should show at the end of the year. You can contact your lender and ask for a detailed explanation as to how the principal curtailment has been applied towards the mortgage.
The extra payments you make on your mortgage are applied against the principal and helps pay off the loan faster. I think it should show at the end of the year. You can contact your lender and ask for a detailed explanation as to how the principal curtailment has been applied towards the mortgage.
is it better to pay $100 extra per month or $500 extra every five months?
joel, paying additional every month will pay down the balance faster than waiting to accummulate $500 in the fifth month. it's not substantial savings, but savings nonetheless.
I am paying 500 per month mortgage payment. If I pay an extra $500 on the principal each month how fast am I paying off the principal? rate is 6% 30 years
Hi Anne!
Welcome to forums!
You can use the given calculator in order to find out how fast you can pay off your mortgage:
http://www.mortgagefit.com/calculators/extra-payment.html
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You can use the given calculator in order to find out how fast you can pay off your mortgage:
http://www.mortgagefit.com/calculators/extra-payment.html
Feel free to ask if you've further queries.
Sussane
If you have the extra money to put towards it, are there any downsides to paying curtailments on your mortgage since it is applied directly to the principal?
if anyone says there is a downside, i will be among the first to argue the point. of course, if you're foregoing essentials (food, clothing, etc.) to do so, that might call the practice into question.
I have a variable rate hloc and no mortgage on a condo. Is it better to keep the rate variable or to lock it in? Is it quicker to pay off a fixed rate?