Some of our investor-class clientele benefit greatly from paying as little principal as possible and using the extra cash flow they receive on a monthly basis as a result to finance additional investments.

A relatively small portion of your monthly mortgage payment goes toward the principle balance of the loan. The rest is paid toward interest. However, if you should choose to pay extra each month, then then entire extra payment is applied to the principal balance.

Keep in mind that when you have an interset only loan or a payment option loan and you are only making interest only payments, your principal balance will remain the same.

Also, if you have a pay option loan and choose to make the minimum payment, you principal balance may actually increase.

At the beginning of your loan, the majority of each payment will go towards the interest. The principal, will be slowly payed down over time. On a typical 30 year fixed rate mortgage, you will have roughly half of the principal paid 22 years into the loan. The last eight years of the loan, you will be paying all principal.

Interest is always calculated based on the outstanding principal balance. If a homeowner with a fixed rate mortgage makes an extra payment towards principal reduction, the required monthly payment does not get lowered. Instead, a bigger portion of the monthly payment goes towards paying off the principal. As a result, the loan will be paid off sooner.