Best day for extra mortgage payment?

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Dear Dr. Don,
If you make an extra principal payment on a house every month, what day of the month will you need to make that extra mortgage payment to cut down on the interest of the loan? Or does it not matter as long as it is an extra payment on the principal of the loan?
— Michelle Mortgage

Dear Michelle,
You really don’t have to worry about what day the additional principal payment is made, since most of the interest savings come from the reduction of principal over the remaining loan term, not what’s going on with the loan balance intramonth.

Let’s say you made an additional principal payment of $1,000 in the middle of the month. Assuming the payment immediately reduced your loan balance by that $1,000, you’d save 15 days’ worth of interest. If the interest rate on your mortgage is 5 percent, you’ve reduced your interest expense that month by $2.05.

Want to see the long-term impact additional principal payments have on your mortgage? Use a feature on Bankrate’s mortgage calculator to see how a single payment or regular payments will shorten the loan term and total interest expense.

In the example below, I made a single additional principal payment of $1,000 with my first mortgage payment. It shaved four months off the life of the loan and reduced total interest expense by $3,420.

Extra principal payments
Mortgage Mortgage w/

additional payment

Loan amount: $ 200,000 $ 200,000
Interest rate: 5 percent 5 percent
Loan term (months): 360 356
Mortgage payment: $ 1,073.64 $ 1,073.64
One additional principal payment of $1,000

made with the first mortgage payment

$ 1,000.00
Total payments: $ 386,512 $ 383,091
Total Interest: $ 186,512 $ 183,091
Difference $ 3,420

I’d go for convenience, and make the additional principal payment at the same time I made my monthly mortgage payment. Keep score by making sure the lender properly credits the additional principal payment to the outstanding loan balance.

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