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Paying down principal on interest-only mortgage

A couple of questons on the fundamentals of interest only mortgages.

  1. If I decide to make lump sum payments every month or so to the principal of the loan how does that change the monthly payment? a. Does it stay the same? b. If not how does one figure the monthly payment? Is it just a simple interest calculation based on the remaining liabilty?

By the way I posted this to misc.taxes.moderated by mistake.

Thanks

JW

Reply to
JW
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Yes. Balance * rate/12 = payment. So any reduction to balance will reduce the payment.

I don't see it in queue at mtm, the software should be set to reject cross posted posts, so it's probably gone already.

You mat want to set up a spreadsheet with mortgage calculations to see how you can pay it off over reasonable time and not get caught when it starts to amortize for real. JOE

Reply to
joetaxpayer

joetaxpayer was correct to my understanding (pays down principal, next payment is principal*rate/12.

Always understand terms of the loan. Interest only is not always interest only. Maybe loan is interest only for 10 years, then there is a balloon payment at end of year 10. Maybe loan goes into a 20 year repayment period after end of 10 year interest only period.

Read the fine print.

Reply to
jIM

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