Do Large Mortgage Principal Payments Reduce Monthly Payments?
On home mortgages, a large payment to principal reduces the loan balance, and with it the "fully-amortizing monthly payment", or FAMP. FAMP is the level monthly payment required to repay the mortgage fully over its remaining term. Many borrowers would like a mortgage on which the monthly payment would drop to the new lower FAMP following a large payment to principal, and are disappointed when they find they don't have one.
The rules governing payment adjustments following extra principal payments vary with the type of mortgage. Fixed-rate mortgages (FRMs), adjustable rate mortgages (ARMs), and home equity lines of credit (HELOCs) all work differently in that regard.
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The rules governing payment adjustments following extra principal payments vary with the type of mortgage. Fixed-rate mortgages (FRMs), adjustable rate mortgages (ARMs), and home equity lines of credit (HELOCs) all work differently in that regard.
More...