Why are monthly mortgage pre-payments applied to the back-end of the mortgage?
After having paid several years of 'extra' principal payment on my mortgage, I found that the extra monies were being applied the the 'back-end' of the mortgage instead of the 'front end'.
The reason this is important is that the mortgage interest on an amortized loan is higher on the front end than at the back end. If you look at an amortization table, the amount allocated monthly to PI (principal & interest) is not equal. The first several years of the mortgage is heavily weighted towards interest and very little towards principal.
A strategy some have said is to send exactly the amount of several months pre-paid principal payments along with the current months full P&I payment thereby not allowing the INTEREST for those future months of pre-paid PRINCIPAL to
be collected. In other words. Payment #1 Principal & Interest PLUS payment of Principal for months 2, 3, 4 & 5 would circumvent Interest payments for months 2, 3, 4 & 5. That would save THOUSANDS immediately on the mortgage. Your next months payment would begin with Payment #6 P & I. and if you can afford to pay Principal for months 7, 8, 9 & 10. you would save even more THOUSANDS.
The problem with this strategy is that banks don't like it and do everything to discourage one from pre-paying up-front principal. They will gladly accept your payments and apply them to the 'back-end' of the loan.
I would like to know more about a method to force the banks to accept the payments on the 'front-end' to avoid paying interest. Is this possible? If so, how can I do this?