Modeling an extra mortgage payment

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Is there any easy way to model making a very occasional, but significant (up to 10% of balance), extra payment of principal on a mortgage?

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dan royer's picture

There's really not an easy way to model that that I can think of. What I believe needs to be done is just use an amortization calculator at bankrate.com or somewhere and get a new monthly payment on a shorter time period and rerun your case with different a different mortgage time period and amount. I know that's not really capturing exactly what you are describing but I believe it's the best that can be done. I haven't modeled a lot of early payoffs but in my experience with them the psychological benefits far outweighs the monetary benefits.

FWIW, what I used to do (til I paid it off) was set aside my extra monthly payments in their own account and then make that annual lump sum payment at the end of the year each year. Maybe not as financially smart as just making the extra monthly payments, but it felt better to do it that way because I feared sometimes that I might need that money. I proved by the end of each year that I could afford the extra payments. In my model, I just amortized across the number of years this approach would take me.