Can You Choose How the Mortgage Payment Is Divided?

August 7, 2006, Reviewed July 11, 2007,  May 1, 2011

"On my mortgage, I pay only part of the interest, with the unpaid portion added to the balance. If I have extra cash, how should I apply it, to the interest or to the principal."

You don’t have that option, in fact, no mortgage borrower does. The allocation of a mortgage payment between interest and principal is determined mechanically from the definitions of "interest" and "principal".

Interest is the amount the lender is due for the period covered, usually a month, and is calculated from the interest rate and the loan balance. For example, if the loan is for $100,000 and the rate is 6%, the monthly rate of .5% is multiplied by $100,000 to get $500 of interest due.

Principal is the payment minus the interest, and it is also equal to the change in the loan balance. If the borrower pays $600, for example, then $500 is interest and $100 is principal. The balance is reduced by $100, which is called "amortization". If the borrower pays $400, the principal is -$100 and the balance rises by $100, referred to as "negative amortization". See How Does Negative Amortization on a Mortgage Work?

In your case, the payment doesn’t cover the interest, let’s say it is $300, which means that the principal payment is -$200. If you find another $400 to add to the payment, it would raise the total payment to $700, of which $500 would go to interest and $200 to principal. There is no discretion involved. There never is.

Want to shop for a mortgage on a level playing field?

Why Shop for a Mortgage with the Professor?

  1. Receive His Help in Finding the Type of Mortgage That Best Meets Your Needs
  2. Shop Prices Posted Directly by His Certified Lenders
  3. Shop Prices Fully Adjusted to Your Deal
  4. Shop Prices That Are Always Current
  5. Get Him as Your Ombudsman Just in Case

Read More About the Support and Protections Listed Above

Sign up with your email address to receive new article notifications