AgentMortgage

Borrower strategy may shorten mortgage life

How should loan-servicing agent handle my extra payments?

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"A friend was telling me of an interesting way to shorten the term of a mortgage. He says that I could instruct my bank to pay the interest portion of, say, the next 10 months of regular payments. My next payment would be for the 11th month on my amortization schedule. The result would be to save the next 10 months of regularly scheduled interest, saving me thousands of dollars and reducing my loan term by 10 months. Is this possible?" Your friend is confused. If you told the servicing agent (SA) you wanted to pay the interest for the next 10 months, you would get a blank stare. Interest is calculated each month on the balance at the end of the preceding month. Hence, interest is not known for future months, since it depends on what happens to the balances in the preceding months. You can add up the interest payments shown on an amortization schedule for the first 10 months, but that number is conditional on your making the first 10 scheduled (required) payments on time, with no ext...