Question about mortgages

[ESMonitor]

I've learned that it's best to make a 20% initial down payment on a mortgage and to make the payment plan for a 15 year term.

Are the payments for those 15 years at a fixed amount each month? What if you received your tax refund and wanted to pay more than what is required for the minimum payment for the month?

[kork13]

The required payment that you need to pay the bank each month will never change for the entire 15 year mortgage (as long as you don't refinance or anything like that). If you'd like to make an extra principle payment, you can do that at any time, either on your bank's website, or just by mail. Send them the money, and just specify it as a "principle payment".

[disneysteve]

On a 15-year fixed rate mortgage, you would have 15 years of equal mothly payments.

However, you need to understand that each payment actually has 2 components: principal and interest. As the principal gets paid down, the amount of interest each month gets reduced and more of the payment goes to principal. Early on, you pay more interest. Later on, you pay more principal.

If you pay extra toward principal, such as with your tax refund, that won't change the amount due for future payments but it will change the breakdown of how much goes to principal (more) and how much goes to interest (less) thus resulting in you paying off the loan earlier than scheduled and paying less total interest in the process. Hope that makes sense.

[ESMonitor]

Ok. Thanks for the knowledge. That makes sense and confirmed my assumption about it. It would not make sense to lock in 15 year mortgage and not be able to pay any more money per month than the minimum fixed amount.

Back during student loan days, sometimes I would pay twice as much as what was required for the minimum monthly payment. This would help drive down the principal balance AND would reduce my minimum monthly amout due for the next month, although I see mortgage repayment plans might not work the same way? Not that I would be interested in doing that, would prefer to snowball on a mortgage and chop down the interest $$.

[humandraydel]

Ok. Thanks for the knowledge. That makes sense and confirmed my assumption about it. It would not make sense to lock in 15 year mortgage and not be able to pay any more money per month than the minimum fixed amount.

Back during student loan days, sometimes I would pay twice as much as what was required for the minimum monthly payment. This would help drive down the principal balance AND would reduce my minimum monthly amout due for the next month, although I see mortgage repayment plans might not work the same way? Not that I would be interested in doing that, would prefer to snowball on a mortgage and chop down the interest $$.

My preference is to lock in a 30 year loan and then - if you want - you can always make the "15 year loan" payment with the extra going to principal. The benefit of this is that if you HAVE to you can pay only the lower 30 year payment - say, if you lost your job or something.

[MakeAStash]

With rates low, I'd go for the 30-year, and pay early if later desired.

Note that the monthly amount typically does not remain exactly the same for the life of the mortgage. The lender keeps some of your money in escrow to pay real estate taxes, and that amount is adjusted each year, so your monthly payment may go up and down slightly from one year to the next.

[Jerry91]

Well, whether or not the loan payment will be fixed or adjustable will depend upon you. In most cases, 15 year mortgages are fixed rate ones. It is better to go for a fixed rate mortgage now because the interest rates are still low but they may rise to a great extent soon.