American Center for Credit Education

A. It’s great that you want to pay extra on your mortgage and reduce the amount of interest you will pay over the life of your loan. The first thing you need to do is pull out your mortgage documents. You need to make sure you don’t have any pre-payment penalties attached to your loan. So read your documents carefully to ensure that your loan allows you to make extra payments. If you are unable to locate your mortgage loan documents, call you lender.

The easiest way to make an extra payment is to add it each month to your monthly payment. Your lender should allow you to dictate how you want the extra money to be applied. If you aren’t explicit, your lender will probably put the money into your escrow account. So if you want the extra amount to be applied to principal, you need to say so.

If you are making your payment online, many lenders make it easy for you to add the extra amount and state how you want the extra applied. You can save thousands of dollars in interest on a mortgage loan by paying an extra $50 a month on your loan. You can increase or decrease the extra amount you pay each month, as long as you make the full monthly payment.

Some lenders offer a special program or service where you make a payment every two weeks, and it is applied to your mortgage. There is often an enrollment fee for this kind of a program. To make this work, you will have to make half a payment two weeks before your total payment is due and the other half by the payment date. In essence, you will be making your payment early.

You need to make sure the payment is applied every two weeks to your mortgage and that it isn’t sitting in an escrow account until the full payment is available. Recently, Paymap Inc., a Colorado payment processing company, was fined a $5 million and ordered to pay $33.4 million to consumers who had entered their Equity Accelerator Program.

Paymap withdrew money every two weeks from consumers’ accounts but did not send the payment immediately to the lender. Instead, Paymap put the money in a custodial account and paid the mortgage on the original monthly schedule. Consumers paid $295 to enroll in Paymap’s program, but didn’t save money on their mortgage, as promised.

If you opt to enroll in a service that handles your payments, you need to make sure those payments are applied to our loans as they are supposed to be—having online access to your accounts can make this easier than it once was.

As long as your mortgage loan allows you to make extra payments, any extra money applied to your principal will reduce the total interest you will pay.

Bonnie Spain is the executive director of the American Center for Credit Education and Consumer Credit Counseling Service of the Black Hills. For more information, email acce@acce-online.com.

The material in this transmission is provided for personal, non-commercial, educational, and informational purposes only. ACCE makes no representations or warranties with respect to the accuracy or completeness of the contents of this transmission and assumes no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. You should consult a professional where appropriate.