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Posts: 18
Registered: ‎03-18-2008
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Extra principal payments on mortgage and FICO

I'm in year 14 of a 30 year fixed mortgage.  If I start to include extra an extra principal amount with my monthly payment (whether just a flat amount or an amount matching the amortization schedule) what effect if any does this have on my FICO score?  I wouldn't think it would have any negative effect at all and possibly a minor positive effect.

 

Also, how do I determine whether it is better to pay the flat amount each month or the amortized amount?  Are there mortgage calculators out there that are easy to use to determine this?  Also, I assume I need to make the regular mortgage payment PLUS additional principal by the last business day (posting to my account before the due date) as mortgages calculate the interest based on the outstanding loan balance over the preceding 30 days.
 

Thanks!

fh

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Posts: 5,279
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Re: Extra principal payments on mortgage and FICO


forthill wrote:

I'm in year 14 of a 30 year fixed mortgage. If I start to include extra an extra principal amount with my monthly payment (whether just a flat amount or an amount matching the amortization schedule) what effect if any does this have on my FICO score? I wouldn't think it would have any negative effect at all and possibly a minor positive effect.

 

Also, how do I determine whether it is better to pay the flat amount each month or the amortized amount? Are there mortgage calculators out there that are easy to use to determine this? Also, I assume I need to make the regular mortgage payment PLUS additional principal by the last business day (posting to my account before the due date) as mortgages calculate the interest based on the outstanding loan balance over the preceding 30 days.

Thanks!

fh


 

Paying extra to your mortgage probably would not have any effect on your FICO score. In my case, I pay extra to my HELOC and my student loan each month, and it hasn't affected my score at all.

 

I'm not sure what you mean by the "amortized amount" as compared to the "flat amount". Thirty year mortgage payments are "flat" (i.e. unchanging) payments that amortize the principal over the life of the loan.

 

Are you saying that you want your extra payment to equal the amount that is already going towards the principal with your regular payment? If so, then be prepared for ever-increasing extra payments as time goes on. With each payment, the amount that goes to prinicipal increases while interest payments decrease. Also, if you really want to do it this way, you'd have to recalculate your amortization schedule each month, because each extra payment will cause a small shift in future payments towards paying off the principal.

 

I think most people who pay extra to their mortgage simply add a flat amount - $200, for example - to each monthly payment. This extra payment will go to pay down the principal, and shorten the life of the loan.

 

With regard to when to make the extra payment and how it will be applied to the loan, I think it might depend on your lender. Some lenders apply the payment immediately to the principal and thus reduce the daily interest charges from day 1, but I believe my lender holds any extra payment in a "suspense" account until the close of the billing cycle, at which time the sum of payments is applied to the account and the extra payment goes to principal.

 

Oh, I use the Bankrate.com mortgage calculator. It has a nice tool that tells you how your payoff date changes if you make extra payments each month, each year, or just once during the loan. It will also generate a nice amortization calendar which shows how you monthly payment is broken down, and a running total of the interest that you have paid.

 

Sorry this is so wordy, but I hope it helps.

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Re: Extra principal payments on mortgage and FICO

It shouldn't have any effect on your FICO score.  Mortgages don't report like revolving debt, where the higher the balance the more negative impact it's having on your FICO score.  If the FICO score takes into consideration your total amount of debt owned, the it would help, but I'm not sure the FICO score includes that in it's algorhythem.


forthill wrote:

Also, how do I determine whether it is better to pay the flat amount each month or the amortized amount?  Are there mortgage calculators out there that are easy to use to determine this?  Also, I assume I need to make the regular mortgage payment PLUS additional principal by the last business day (posting to my account before the due date) as mortgages calculate the interest based on the outstanding loan balance over the preceding 30 days.


Paying more than the regularly scheduled amortized payment will pay your mortgage off faster than if you didn't pay more - if that's what you are asking.  If you are asking is it better to pay a flat amount over the regularly scheduled amortized payment or an amortized amount over the regularly scheduled amortzed payment... and if your definition of better is which would pay the mortgage off quicker, then the answer would be whichever would be a larger payment amount.

 

I think DallasLoanGuy posted a really good mortgage calculator that would allow you to add in payments after a certain date, I tried searching for it but couldn't find it right away.

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