I just recently bought my first condominium, and I am paying my first mortgage bill. On the bill, it has a box that says:
APPLICATION OF EXTRA MONEY (‘X’ CHECK ONE)
__ PRINCIPAL REDUCTION (C)
__ADDITIONAL PAYMENT (P)
I am wondering what is the difference between the two and if anyone has any suggestions on which one I should check? Thanks!
Check Principal Reduction.
If you do this at least 1x every year you will save a lot of interest in the long term.
If you look at the numbers, the initial principal amount is very small and you can pay some every month in the beginning.
It saves a lot in the long term. Don’t let anyone tell you that you need the interest deduction. That is money that you never have to spend and you can keep it instead of being able to deduct 15% or 28%- whichever is your tax bracket.
I wish I had known this in the early years of my mortgage!
Congrats on your new home!.
I’d recommend ‘principal recuction’. Additional payment sounds like it’s applied to a late payment or escrow shortage. Congrats!
References :
Check Principal Reduction.
If you do this at least 1x every year you will save a lot of interest in the long term.
If you look at the numbers, the initial principal amount is very small and you can pay some every month in the beginning.
It saves a lot in the long term. Don’t let anyone tell you that you need the interest deduction. That is money that you never have to spend and you can keep it instead of being able to deduct 15% or 28%- whichever is your tax bracket.
I wish I had known this in the early years of my mortgage!
Congrats on your new home!.
References :