Extra Mortgage Payments

We’ll assume that, like most mortgages these days, yours contains no penalty for pre-payments. If you send the lender an extra amount ahead of time, equal to the principal scheduled for the next payment, you can cross that payment off your amortization schedule and skip down to the You sent June’s regular payment, principal and interest, on time.  Along with it you sent the principal amount due for the July payment.  Both June and July are crossed off the amortization schedule.  You still owe a regular payment in July, but it covers what was originally scheduled for August.  You are one month ahead from then on and your loan will eventually be paid off a month early.  Same thing any time you send in an extra principal payment. This seems like a real bargain, because at the start of your mortgage loan, when you’ve borrowed the whole amount, most of your monthly payment is needed for interest due on the loan and the portion left for reducing the principal is quite small.  An extra principal payment doesn’t cost much and cuts off a whole month.  That’s because your relative will have the use of that extra bit of money (and you’ll save paying interest on it) from then on, maybe for the next 30 years. As time goes on, though, and the loan gets whittled down, less is needed for interest and more of each monthly payment goes toward principal.  The principal portion keeps getting larger and it may not be as easy to make extra payments later on. Lending institutions have computer programs set up to deal with odd amounts in pre-payments, but you and your relative shouldn’t have to deal with that.  Make any extra payment the exact amount due on the next line in your schedule, or even,  at the start when it’s very small, for the next few months.   That way it’ll be easy for you and your relative to keep track of exactly where you are, without the need for a new schedule.  It’s important for you both to agree, for example, that “this takes care of payments  6 and  7 and brings us down to  8 for the coming month.”  Unless you both understand the same thing,  you’d be asking for a real mess at the end of the loan period. When you make the last payment, your relative owes you a properly-filled-out document showing that the debt has been cleared. A lawyer can help prepare it in a form that will be acceptable for entering in the county’s public records. That will give notice to anyone who investigates, that the house is free of the debt.