During week four discussion, a student in another group mentioned managing installment payment plans when making larger payments or extra payments each month and there was little time to get a discussion going but I wondered if anyone was interested for week five discussion. One interesting thing about mortgage payments $($or any installment payment $-$ cars, student loans, etc.$)$ is that paying extra on the principal balance each month can drastically reduce both the amount of interest paid and the length of the loan. As an example, my brother and sister$-$in$-$law purchased their dream home in $2002$ for $$228,000.$ With an $$80,000$ down payment, the amount financed was $$148,000$ at $3,25\%$ interest. The payment amount on their $30-$year mortgage was calculated to be $$644\mathrm{.}11.$ Here is what they owed in $2002$:

Original length of mortgage: $30$ years $(360$ months$)$

Original amount financed $$148,000$

Original payment amt: $$644\mathrm{.}11$ principal and interest

Total amount to pay $($principal and interest$)$ at end of loan: $$231,876\mathrm{.}19$

Instead, they paid an extra $$200$ each month for a total payment of $$844\mathrm{.}11$ and recently made their last mortgage payment.

It doesn't sound like much but that extra $$200$ each month reduced the term of their loan by ten years. Here's what they saved:

New length of mortgage: $20$ years $(240$ months$)$

Original amount financed $$148,000$

New payment amt: $$844\mathrm{.}11$ principal and interest

Total amount paid $($principal and interest$)$ at end of loan: $$200,633\mathrm{.}72$

So$,$ they saved $$31,042\mathrm{.}46$ in mortgage interest over the course of the loan. It will allow both of them to retire much earlier than they would have otherwise. And, they are loving not having to write a check for $$844\mathrm{.}11$ each month.

If you have a mortgage $($or any other installment loan$),$ what would an extra payment do for your financial future? Here's an extra payment calculator that can give you a rough idea of potential interest savings and the length of the loan.