Does Paying Down the Mortgage Decrease My Payment?

If I pay down my mortage will my monthly note decrease?

3 Answers

I think what you are asking is if your payment amount will change.  That all depends on the type of mortgage loan you have.  A fixed rate loan has a fixed payment amount for the life of the loan.  Any pre-payment on the principal will not alter the monthly payment, but WILL shorten the term of the loan.  This will result in interest savings of a substantial nature over time if the pre-payment is large or if it is a regular part of the payment pattern you have established on a monthly basis.


On an adjustable rate loan, your note has a fixed maturity date.  If the next adjustment leaves 27 years remaining on the term, the payment will be calculated based on the index and margin added together along with the principal balance unpaid.  IF the rate stays the same or is reduced, you will see a reduction in the monthly payment [excluding escrows] with a principal pre-payment.  If the rate goes up, you may see a reduction in the monthly payment, but you may not, depending on the amount of the reduction and the increase in the rate for the next period of time before the rate is subject to another adjustment.

A principal reduction will reduce the amount of interest you pay on the loan. No matter which type of loan you have. 

Most lenders will allow you to re-amortize your loan if you make a sizable principal reduction. There is generally a charge for this (about $250). Keep in mind when considering a principal reduction that:

  • You are turning a liquid asset (cash) into a very illiquid one. And access to that money in the form of a home equity loan is not guaranteed (especially in today's market) and it will cost you. So be very sure you won't have second thoughts after paying down your loan. Be sure that you have sufficient emergency funds in safe places (not the stock market) in case you need them.

  • You may be leaving other investment opportunities on the table by putting your money into your mortgage. Keep in mind that mortgage interest is often tax-deductable and is probably the cheapest source of funding available to most people. If you anticipate starting a business, paying for college, or purchasing investment property, you might want to keep your money out of your residence and use it for those endeavors.

  • Paying down more than 20% of your mortgage in any given year may trigger prepayment penalties if your loan comes with these. Check your loan documents to make sure you won't be incurring unexpected surcharges by paying down your mortgage.

So if paying down your mortgage won't leave you strapped and you don't foresee investing that money elsewhere, lowering your mortgage balance can shorten the time it takes to retire the loan, cut your monthly obligation, reduce your interest expense, and ease your cash flow. For some people, paying a mortgage down is a safe option and helps them sleep better. If that's you, talk to your lender about re-amortizing your loan before you make that extra payment.

You should understand the thing is that a fixed interest rate loan is having a flat & fixed loan payment amount for full life of the mortgage loan. If you want to make some prepayment then remember any kind of prepayment on your loan principal amount will never change the equated monthly installment, but there may be a possibility that it can shorten your loan term. paydayloans uk