Recently, someone asked why their mortgage loan balance wasn’t going down, even though they were making extra payments each month. This sounded very odd, so further inquiry was needed.
The person explained that each month they sent in an extra payment to their escrow. What, their escrow? Mystery solved. Your escrow is for your home insurance and taxes. It has absolutely nothing to do with the principal balance on the loan.
If you are going to be paying extra on your loan, make sure you specify that it is for the principal balance. On your mortgage payment coupon or monthly mortgage bill, there should be a designation showing monthly payment, additional payment, additional payment, or something similar. What you want to do is one of the following two things,
- Put the amount your paying for your monthly payment and on the additional payment write, “Additional Principal Only Payment” and the extra amount you are sending. You are writing one check, which includes your regular monthly payment and the additional principal only payment.
- The other method is to include a second check with “Additional Principal Only Payment” written on the check’s memo area.
If you do not designate that the payment is to go to your principal only, the lender will apply towards the next month’s regular monthly payment.
You don’t want to have that extra payment going to interest, your next month’s payment, or escrow. It should only go towards your principal.