From Realtor Magazine Online, Daily Real Estate News December 26, 2007
Getting a windfall and using it to pay off the mortgage sounds like it should reduce the monthly amount owed, but often it doesn’t.
Fixed-rate mortgage holders who pay off a big chunk of their mortgage are likely to shorten the payoff period, but the infusion of cash probably won’t reduce at all the amount they owe monthly.
Holders of adjustable-rate mortgages who are making fully amortizing payments will get a payment adjustment at the point where the payment is recalculated after a rate adjustment.
Mortgages with an interest-only option should see their payment decline – unless the servicer handles the reset differently than the industry norm. Many delay the payment adjustment for a year, sometimes more.
The most responsive type of mortgage to oversized payments is the home ownership accelerator, because it has no fixed payment requirement. The monthly amount owed fluctuates with the amount the mortgage holder has available to pay.
Source: The Washington Post, Jack Guttentag (12/22/2007)
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