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Principal Curtailment Formula:
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Principal curtailment refers to making extra payments toward the principal balance of a loan, which reduces the outstanding balance faster than the regular payment schedule. This is particularly relevant in California's real estate market where mortgage amounts are typically higher than national averages.
The calculator uses a simple formula:
Where:
Explanation: This calculation helps borrowers understand how additional payments affect their remaining loan balance.
Details: Making principal curtailment payments can significantly reduce the total interest paid over the life of a loan and shorten the loan term. In California's high-cost housing market, this strategy can save homeowners tens of thousands of dollars.
Tips: Enter the original principal amount and the curtailment amount you plan to pay. Both values must be positive numbers, and the curtailment should not exceed the original principal amount.
Q1: Are there prepayment penalties in California?
A: California law generally prohibits prepayment penalties on most residential mortgage loans after the first 36 months of the loan term.
Q2: How often can I make curtailment payments?
A: Most lenders allow additional principal payments at any time, but check your loan agreement for specific terms and any restrictions.
Q3: Should I prioritize curtailment over other investments?
A: This depends on your interest rate and investment opportunities. Generally, if your mortgage rate is higher than expected investment returns, curtailment may be beneficial.
Q4: Does curtailment affect my monthly payment?
A: No, your regular monthly payment amount typically remains the same, but more of each payment will go toward principal rather than interest.
Q5: Are curtailment payments tax deductible in California?
A: Principal payments are not tax deductible. Only mortgage interest may be deductible, subject to California and federal tax limitations.