Extra payment towards mortgage

[simba20]

Being that I like to work with round numbers, whenever I pay bills, I usually round up the payment a little bit. For instance, our car payment is $337, I pay $350. I figure every little bit helps pay it off faster.

So on our mortgage, I do the same thing. Payment is $1,011 and I write the check for $1,025. That means there's an extra $13 going towards principal.

But here's the question. On the payment slip for the mortgage, there are two boxes, one to write the amount of any extra to go towrds the principle and another for extra towards the escrow. Usually I just have the extra going towards principal, but is there any reason why or should I ever put any toward the escrow?

 

[Lisa loves Pooh]

Sometimes taxes or insurance premiums increase. When they do your escrow analysis each year, if either of those increase, you would owe money. Ours let's us pay in one lump sum or they just increase the payments the following year to make up for the shortage. No need to do this if your taxes/insurance are pretty stable. In Florida, our insurance has risen annually for years. One year, it doubled.

Any excess will not be applied to priniciple.. When they next do your escrow analysis, if you have a surplus, they will either refund it or lower yor mortgage payment accordingly for the following year.

 

[Sorsha]

For my mortgage account at least, at the end of the year, any extra collected in the escrow account not needed to pay the insurance/taxes is refunded back to me in the form of a check. My escrow account is only used to pay my taxes and insurances, so that amount is a constant, unless I know it is going to change for some reason (taxes going up, etc).

Therefore, I always do the same as you and round up my payment, and I always apply it to the principle, so that it won't be refunded back to me a few months later.

 

[tvguy]

I always added $100 a month to my house payment, for principle. Had our house paid off in 17 years despite 2 refinances. Started with a 30 year, refinanced after 4 years to another 30 year, refinanced again 4 years later to a 15 year, which was paid off in 9 years.

 

[SookieStackhouse]

Not exactly answering the question, but watch out that sometimes they won't add the extra to principal... they say they will, then they won't do it. You have to call the bank and go through a big hassle to get them to do it (just our experience) with our bank.

 

[golfgal]

The only reason would be because you know you are getting a big hike in your insurance or property taxes and don't think you can cover the entire extra at the end of the year-or what they do is add additional money into your payments for next year to cover. That doesn't sound like it is your situation so don't bother. Escrow accounts are non-interest bearing accounts so put the money in a savings account instead.

 

[manning]

pay it to principal. It will save on interest and over time can be huge.

Monthly mortgage payments are fixed. What a lot of people don't realize is that each month more of the payment goes to principal because interest is being reduced due to the principal dropping. The monthly interest is calculated on the reduced outstanding balance of the loan. What results is the mortgage gets paid off faster and the interest total has been reduced.

 

[LuvOrlando]

It is illegal to misappropriate funds. A check is a contract so if you designate portions to be allocated on the check in the memo section and the check is cashed the recipient is agreeing to the terms of the contract and therefore obligated to follow your directions. Never mind the slip of paper, write out what you want to go where on the check itself and no-one can dispute it.

 

[marlynnp]

It is illegal to misappropriate funds. A check is a contract so if you designate portions to be allocated on the check in the memo section and the check is cashed the recipient is agreeing to the terms of the contract and therefore obligated to follow your directions. Never mind the slip of paper, write out what you want to go where on the check itself and no-one can dispute it.

What? Where did you get that idea. A check is not a contract.