Every mortgage is unique. Let’s take an example of a simple 30 year fixed rate mortgage amortized over 30 years. Your very first payment will be just about all interest and a tiny tiny bit of principal. Your second payment will be a tiny fraction less interest and a tiny fraction more principal…. and so on and so on.
Now instead of making 12 monthly payments, let’s say you make biweekly payments. Well essentially you will be making an extra payment right? There are 26 biweekly pay periods in a year.
All you are really doing is paying down your principal in a structured manner. Indeed this is a good way to slowly chip away at your principal. Many will argue to not do that and instead invest that extra payment in an investment vehicle to get a better return then servicing your debt.
This post is not to debate that point but to simply illustrate an overly simplified answer to your question.
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Now getting to the specifics of your loan, your first 10 years are I/O so any payment you make above and beyond the interest will (I assume) go towards your principal. However you need to check with the lender to make sure that indeed will be the case.
You do have a problem you have to cope with. Right now your payment is interest only. At the end of the 10th year you will then need to make a full payment and you amortization will kick in. Your payment will go up. Yours is an example of many loans we talk about on Piggington.
Do you know what your new payment will be? You need to find out. HLS or Pasadena broker can answer better then I but I would bet that your payment will be based on a 30 year amortization. What is more troublesome is, what will your rate be? I assume your current rate is only for the first 10 years.
I don’t want to bring you down, but instead of focussing on making an extra payment, (if you can afford to do so) you may want to think about refinancing into a safer vehicle. Alternately if you are going to not be in the home and sell within the next 10 years it makes no sense to prepay it down.
