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Why is my Mortgage Payment Still so High?

I Expected the Payment to Shrink


Question: I recently inherited money and paid off a large portion of my mortgage. I expected to see my monthly payments go down, but they haven’t. Why not?

Answer: With traditional fixed rate mortgages, your mortgage payment does not change automatically. The payment is set at the beginning based on how much you borrow, how long you’ll repay, and your interest rate. A calculation figures out the level monthly payment required to pay off the loan. See how this works with loan amortization.

When you make a large lump-sum payment, your loan balance changes, but your payment does not. You still benefit: you’ll pay less in interest over the remaining life of your loan, and the loan will be paid off earlier than projected. However, you don’t benefit from lower monthly payments.

If you want to lower your payment, talk to your lender (ideally before making the lump-sum payment). They may be able to reamortize or recast the loan and calculate a new payment. Some lenders don’t do this, but some will. Expect to pay a modest fee for this service.

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