Any mortgage experts on the forums?

[jackofall]

https://thefinancebuff.com/is-home-mortgage-simple-interest-or-compound-interest.html

I think this explains it properly but I'm no math wizard.
TL;DR "...a typical home mortgage with amortized payments behave[s ] more like a compound interest loan, but it doesn’t make it one. The compounding effect comes from varying principal payments, not from compounding interest."

Thanks. Super helpful

[farmbochur]

https://thefinancebuff.com/is-home-mortgage-simple-interest-or-compound-interest.html

I think this explains it properly but I'm no math wizard.
TL;DR "...a typical home mortgage with amortized payments behave[s ] more like a compound interest loan, but it doesn’t make it one. The compounding effect comes from varying principal payments, not from compounding interest."

Thanks. Super helpful

Is it helpful? Seems like a bunch of semantics to me.

[skyguy918]

https://thefinancebuff.com/is-home-mortgage-simple-interest-or-compound-interest.html

I think this explains it properly but I'm no math wizard.
TL;DR "...a typical home mortgage with amortized payments behave[s ] more like a compound interest loan, but it doesn’t make it one. The compounding effect comes from varying principal payments, not from compounding interest."

Again, not really relevant to the question at hand. The interest you're not paying on the $50k payment is absolutely compounding interest - hence the formula 1.05^30 (in case anyone wants to get nitpicky, that's obviously not the exact formula here).

And as to that post's actual point, its very much semantics. You're not paying interest on the interest they already charged because you paid it off right away. Technically it's correct that the interest can be described as simple interest because if you miss a payment they don't increase your payments/interest owed (they'll charge you fees instead). But in the other direction (additional payments) it's more useful to think of the interest saved in terms of compound interest.

[ruru1000]

I think he did.

Basically, in your example of a $500k 30yr at 5%, because of how the loan amortizes you make 360 equal monthly payments of approximately $2684/month, which totals to approximately $966,240, almost double the loan amount. If you paid down $50k on day one then you’re effectively borrowing only $450k, and the payments for a $450k 30-year loan only add up to approx $869,760.

My understanding is on a 30 yr fixed loan, making an extra lump $50k payment will not reflect a $450k remaining balance - rather, it would just reduce the amount of months on the backend. ARM's are a different story since the interest is calculated on the remaining principal balance on a monthly basis.   Again, I could be wrong, but you should definitely double check with the bank/mortgage company.

[skyguy918]

My understanding is on a 30 yr fixed loan, making an extra lump $50k payment will not reflect a $450k remaining balance - rather, it would just reduce the amount of months on the backend. ARM's are a different story since the interest is calculated on the remaining principal balance on a monthly basis.   Again, I could be wrong, but you should definitely double check with the bank/mortgage company.

Generally speaking, additional payments absolutely reduce the loan balance. The whole reason you pay fewer months on the backend is because the balance is zero by then. Maybe what you're thinking of is the fact that they don't recalculate your required monthly payment.

[AsherO]

Correct. There are 2 components to a loan payment. Principal and interest. The principal gets amortized, or split up, over the life of the loan. It makes no difference,  regarding the principal, when I pay principal back. It only makes a difference regarding the interest.

Incorrect. Because amortization is what determines that paying $50k upfront is what pays off $50k in principal. Amortization is the name for the idea that your your fixed payment comprises 95% interest the first year and 1% interest the last year.

[jackofall]

Is it helpful? Seems like a bunch of semantics to me.

I thought it explained everything perfectly

[jackofall]

Again, not really relevant to the question at hand. The interest you're not paying on the $50k payment is absolutely compounding interest - hence the formula 1.05^30 (in case anyone wants to get nitpicky, that's obviously not the exact formula here).

And as to that post's actual point, its very much semantics. You're not paying interest on the interest they already charged because you paid it off right away. Technically it's correct that the interest can be described as simple interest because if you miss a payment they don't increase your payments/interest owed (they'll charge you fees instead). But in the other direction (additional payments) it's more useful to think of the interest saved in terms of compound interest.

They way i understand it is as follows. There is not a real compound component with a mortgage. Interest due and interest paid. However, when you prepay, it has a snowball effect that behaves like a compound. The reason being is because after the prepayment your interest should be less. Yet your paying based on the original calc. So in essence you are paying off more principal. And this continues, A la compound

[jackofall]

Incorrect. Because amortization is what determines that paying $50k upfront is what pays off $50k in principal. Amortization is the name for the idea that your your fixed payment comprises 95% interest the first year and 1% interest the last year.

You are missing the point

[JMHO]

You are missing the point

Haha, point!

[JMHO]

Anyone locked in since Shavuos and mind sharing their rate?

Residential purchase in NYC.

[Fish Tank]

My monthly mortgage payment include the cost of property taxes.

I would like to pay property tax directly to my township. (to pay by cc)

Is there a way to do that?

[my08701]

My monthly mortgage payment include the cost of property taxes.

I would like to pay property tax directly to my township. (to pay by cc)

Is there a way to do that?

you can set it up when applying for your mortgage. It is calling waiving escrows. You can request from your mortgage broker / banker that you’d like to pay your own taxes.  However, if it’s already set up after closing, the bank most probably will not change the ways your escrows are set up. However, it doesn’t hurt to ask. 

[dm123]

My monthly mortgage payment include the cost of property taxes.

I would like to pay property tax directly to my township. (to pay by cc)

Is there a way to do that?

Some townships (maybe all at this point?) have an online portal where you can pay property taxes online.
You can probably also walk into or call the tax collectors office and pay.
Although once the bill is paid I don't think they accept payment until the next bill generates.

If you get in the payment before the bank pays it, will the bank not pay it and refund the overage escrow at annual review or will they pay it and township will refund it? Or will the township hold the extra payment as a credit on the property?

[Fish Tank]

you can set it up when applying for your mortgage. It is calling waiving escrows. You can request from your mortgage broker / banker that you’d like to pay your own taxes.  However, if it’s already set up after closing, the bank most probably will not change the ways your escrows are set up. However, it doesn’t hurt to ask.

Thank you.

What happens if the bank isn't wiling to switch the way the escrow is set up, and I still go ahead and pay the township directly?

[Fish Tank]

If you get in the payment before the bank pays it, will the bank not pay it and refund the overage escrow at annual review or will they pay it and township will refund it? Or will the township hold the extra payment as a credit on the property?

Jinx.

Wondering the same thing.

[dm123]

Jinx.

Wondering the same thing.

LOL yeah.

Although just remembered I did once pay my property insurance (allstate I think, not tax with township) with a CC and IIRC the bank (WF) didn't pay it and they refunded me the overage on annual escrow review.

[my08701]

Thank you.

What happens if the bank isn't wiling to switch the way the escrow is set up, and I still go ahead and pay the township directly?

The bank has the money for escrow and will be mailing in a check as well. If you decide to pay, the township will have both payments, and "eventually" have to send back one payment. I would not suggest paying them a second time..

[my08701]

LOL yeah.

Although just remembered I did once pay my property insurance (allstate I think, not tax with township) with a CC and IIRC the bank (WF) didn't pay it and they refunded me the overage on annual escrow review.

correct, they will always refund you, the banks will not take double payments, neither the insurance company, or township, the question is when and how long that will take..

[Lurker]

What happens if the bank isn't wiling to switch the way the escrow is set up, and I still go ahead and pay the township directly?

IME, my bank made me call in with a confirmation number in order to stop their payment from being made.