Housing Bubbles Going Pop?

[Larry]

Tj,

I hate to see you walk away from the conversation thinking that by redicing principal you are also reducing your interest payments. That simply isn't the case with most mortgages.

Tj is correct. I suspect that you are as well, though.

I suspect that part of the debate here, though, is terminology.

When you pay against your principal, your interest payments go down. Every single time. (As I understand it, that's the law. I read about such laws being passed about 20 years ago, because it was then common for people to continue being charged interest on money they didn't owe any more.)

OTOH, you are correct that when you make that early principal payment, the amount of next month's total payment doesn't change. Just because you overpaid one month doesn't mean you can reduce the size of next month's check.

But when you write next month's check, for the exact same amount as usual, then, because of your early principal payment, less of that check will be allocated to the interest, and more of it will be allocated to the principal.

You will be writing a check for the exact same amount (as if you hadn't made that payment), but the interest part of that check will be smaller.

Now, that part Dj quoted implies, to me, that if you make a principal payment during the interest-only portion of a loan, then your monthly payment does go down, or it would also mean that if you wait till the P&I part of the loan kicks in, that your payments will be lower because of your payment. (As though they calculate your payments at the start of the P&I period.)

I hadn't heard that, but I'm not going to argue against it, either. (Don't know enough.)

[illone]

Larry,

Now we're cooking with gas. You are exactly correct in regards to a loan that has amortization (principal + interest). You lost me before because you mentioned "interest only", and the same concepts don't apply with those type of loans.

You are right, though. With any amortized loan if you accelerate the payoff (apply extra money to principal) you lower your effective rate.

[illone]

Tj is correct and you are not.

Actually, you can almost chalk the entire past two pages up to a misunderstanding. I thought we were talking interest only. It appears now that we're discussing amortized loans.

[DeanCollins]

Actually, you can almost chalk the entire past two pages up to a misunderstanding. I thought we were talking interest only. It appears now that we're discussing amortized loans.

thanks for admitting that you're wrong way to man up :applause:

[illone]

thanks for admitting that you're wrong way to man up :applause:

:laugh:

[Larry]

As long as we're all 'fessing up,

I can see how my choice of an interest-only loan as an example could make people think I was talking about that type of loan.

(And I was really hoping I could correct my post before anybody noticed. But illone caught me. Apologies.)