Can I Make Principal-Only Payments On My Mortgage?

After receiving a financial windfall—such as a raise, an inheritance, or a tax refund—you might wonder how to pay off your mortgage faster. One effective method is making additional principal-only payments. However, before you start, it’s crucial to check if your lender allows these payments. If permitted, principal-only payments can significantly reduce the interest you pay and shorten your mortgage term. Let’s explore whether this strategy is right for you.

What Is A Principal-Only Payment?

A principal-only payment, also called an additional principal payment, is an extra amount paid directly toward your mortgage’s principal balance. This payment exceeds your scheduled monthly amount and can help you save on interest while paying off your mortgage sooner.

You may need to inform your lender that the extra funds should be applied to the principal rather than interest.

How Can Making Additional Principal Payments Help?

Your mortgage payment covers taxes, insurance, and your loan’s principal and interest. When you start making mortgage payments, you enter the amortization process. Reviewing your mortgage amortization schedule helps you understand how much of your monthly payment goes toward principal versus interest.

During the early years of a fixed-rate mortgage, a larger portion of your payment goes toward interest. Since interest is calculated based on the principal balance, reducing your principal ahead of schedule decreases the interest accrued over time.

Do Large Principal-Only Payments Reduce Monthly Payments?

With a fixed-rate mortgage, your monthly payment remains unchanged regardless of additional principal-only payments—unless you opt for a mortgage recast. Making extra payments helps you pay off your mortgage faster and reduces total interest costs.

If you prefer lower monthly payments instead of an early payoff, consider recasting your mortgage. Most lenders require a lump sum of at least $5,000 and charge a small servicing fee. Your lender will then recalculate your monthly payments based on the reduced principal balance while maintaining your original interest rate.

How To Make A Principal-Only Mortgage Payment

If you have extra funds available, you can make principal-only payments in several ways:

• Frequent Payments: Make additional payments throughout the year.
• Annual Lump Sum: Save up and make one large yearly payment.
• Increased Monthly Payments: Add a little extra to each monthly payment.
• Windfall Payments: Apply bonuses, gifts, or tax refunds to your principal balance.

Before making extra payments, confirm with your lender that they will be applied to the principal. Los Angeles Mortgage Lender clients can log into their account to make a one-time payment toward their mortgage principal.

Pros And Cons Of Additional Principal-Only Payments

Pros:

• Save on Interest: Reducing your principal balance lowers the total interest paid over the life of your loan.
• Shorten Loan Term: Paying down the balance early shortens the repayment period.
• Financial Flexibility: A paid-off mortgage frees up funds for other financial goals.

Cons:

• Potential Fees: Some lenders charge fees for making extra payments—Los Angeles Mortgage Lender does not.
• Prepayment Penalties: While rare, some lenders may penalize early payoffs. Los Angeles Mortgage Lender does not impose prepayment penalties.
• Reduced Liquidity: Extra payments mean less money for savings, emergencies, or investments.

Alternatives To Making Extra Principal-Only Payments

If additional principal payments aren’t feasible, consider these alternatives:

Biweekly Mortgage Payments

Instead of making one monthly payment, switch to biweekly payments. This method results in an extra full mortgage payment per year, reducing interest accumulation and shortening the loan term.

Refinancing

Refinancing allows you to replace your current mortgage with a shorter-term loan (e.g., switching from a 30-year to a 15-year mortgage). A lower interest rate and shorter term can help you pay off your loan faster.

FAQs About Principal-Only Mortgage Payments

Is it better to pay the principal or interest on a mortgage? Paying more toward your principal reduces the interest you’ll pay over time. Since each principal payment builds home equity, you can accumulate equity faster with principal-only payments.

Do principal-only payments lower monthly payments? No, principal-only payments do not reduce your fixed monthly mortgage payment. To lower your monthly payment, consider recasting or refinancing.

Are there states that don’t allow principal-only payments? All states allow principal-only payments, but not all lenders permit them. If you want to make additional payments toward your principal, check with your lender—Los Angeles Mortgage Lender allows principal-only payments.

The Bottom Line

Even small additional principal payments can save you thousands in interest over time. If you have a solid financial foundation—such as an emergency fund, no high-interest debt, and a steady income—this strategy can help you become mortgage-free sooner.

If you’re considering a refinance to pay down your mortgage faster and adjust your payment schedule, get started today with Los Angeles Mortgage Lender.

📞 Call us at 213-510-1717 or visit Los Angeles Mortgage Lender to explore your options!