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I have a second mortgage with a interest rate of 7.5% fixed that I’ve been trying to pay off as soon as possible, so I’ve been sending in (online pay) payments outside of the usual month-to-month schedule which has been messing up their system. They’ve since upgraded their online payment system so that you can specify what portion of your payment should go to principal and what portion shall go to towards interest (or if you want to make your minimum payment). With my non-scheduled payments, it was showing that I was paid through Jan. 2006, which is bad because I wanted my payments to be applied straight to principal and not towards future interest.

Why is the distinction significant? It’s the difference of a few months but in the early stages of a mortgage, a ridiculously high percentage of your payment is going towards interest because of how the loan is structured. With my second mortgage, I want to pay it off as quickly as possible and I don’t want the benefits of writing off the taxes. Look at how the regular schedule works (for the next year):

Payment Date	Monthly Payment (P&I only)	Monthly Interest	Monthly Principal	Monthly Balance	Cumulative Interest Paid
Dec 2005	$207.58	$63.48	$144.10	$9,926.00	$63.48
Jan 2006	$207.58	$62.58	$145.00	$9,781.00	$126.06
Feb 2006	$207.58	$61.66	$145.92	$9,635.08	$187.72
Mar 2006	$207.58	$60.74	$146.84	$9,488.24	$248.46
Apr 2006	$207.58	$59.82	$147.76	$9,340.48	$308.28
May 2006	$207.58	$58.88	$148.70	$9,191.78	$367.16
Jun 2006	$207.58	$57.95	$149.63	$9,042.15	$425.11

Now compare that with the schedule if I made a flat out $2,000 payment:

Payment Date	Monthly Payment (P&I only)	Monthly Interest	Monthly Principal	Monthly Balance	Cumulative Interest Paid
Dec 2005	$207.58	$50.88	$156.70	$7,913.40	$50.88
Jan 2006	$207.58	$49.89	$157.69	$7,755.71	$100.77
Feb 2006	$207.58	$48.89	$158.69	$7,597.02	$149.66
Mar 2006	$207.58	$47.89	$159.69	$7,437.33	$197.55
Apr 2006	$207.58	$46.89	$160.69	$7,276.64	$244.44
May 2006	$207.58	$45.87	$161.71	$7,114.93	$290.31
Jun 2006	$207.58	$44.85	$162.73	$6,952.20	$335.16

With that one “little” bump in the schedule, $10/mo goes from interest to principal and across the life of the loan I’d save $770.59 in interest and make fourteen fewer payments.

I made a quick phone call into the mortgage company and they’ll fix the problem within a week. While I don’t know exactly how much money that phone call saved me (and realizing the problem), I know it definitely saved me three months on the schedule.