Paying over the minimum mortgage payment
Let's look at some of your options: In a savings account, your $40,000 might be earning maybe 0.5%, if you are lucky.  In a year, you'll have earned $200.  On the plus side, you'll have your $40,000 easily accessible to you to pay for moving, closing costs on your new house, etc. If you apply it to your mortgage, you are effectively saving the interest on the amount for the life of the loan.  Let's say that the interest rate on your mortgage is 4%.  If you were staying in the house long-term, this interest would be compounded, but since you are only going to be there for 1 year, this move will save you $1600 in interest this year, which means that when you sell the house and pay off this mortgage, you'll have $1600 extra in your pocket. You said that you don't like to dabble in stocks.  I wouldn't recommend investing in individual stocks anyway.  A stock mutual fund, however, is a great option for investing, but only as a long-term investment.  You should be able to beat your 4% mortgage, but only over the long term.  If you want to have the $40,000 available to you in a year, don't invest in a mutual fund now. I would lean toward option #2, applying the money to the mortgage.  However, there are some other considerations: Do you have any other debts, maybe a car loan, student loan, or a credit card balance?  If so, I would forget everything else and put everything toward one or more of these loans first. Do you have an emergency fund in place, or is this $40,000 all of the cash that you have available to you?  One rule of thumb is that you have 3 to 6 months of expenses set aside in a safe, easily accessible account ready to go if something comes up.   Are you saving for retirement?  If you don't already have retirement savings in place and are adding to it regularly, some of this cash would be a great start to a Roth IRA or something like that, invested in a stock mutual fund. If you are already debt free except for this mortgage, you might want to do some of each: Keep $10,000 in a savings account for an emergency fund (if you don't already have an emergency fund), put $5,000 in a Roth IRA (if you aren't already contributing a satisfactory amount to a retirement account), and apply the rest toward your mortgage. First off, putting extra cash toward a mortgage early on, when most of the payments are going to interest, is the BEST time. If you pay an extra $1 on your mortgage today,  you will save 30 years worth of interest (assuming a 30 year mortgage). If in 29 years you pay an extra dollar, you will only save 1 year worth of interest. That said, there are lots of things that go into a decision like this. Do you have other debts? How stable is your income? What is the interest rate on your mortgage compared to any other debts you may have or potential investments you might make? How much risk are you willing to take? Etc. Mortgages tend to be very low interest, and, at least in the U.S., the interest on them is tax-deductible, making the effective interest rate even lower. If you have some other loan, you are almost always better to pay the other loan off first. If you don't mind a little risk, you are usually better off to invest your money rather than pay off the mortgage. Suppose your mortgage is 5%. The average return on the stock market is something like 7% (according to my buddy who works for Wells Fargo). So if you put $1000 toward your mortgage, you'd save $50 the first year. (Ignoring compounding for simplicity, changes the exact numbers but not the basic idea.) If you put that same $1000 in the stock market, than if it's a typical year you'd make $70. You could put $50 of that toward paying the interest on your mortgage and you'd have $20 left to go on a wild spending spree. The catch is that the interest on a mortgage is fixed, while the return on an investment is highly variable. In an AVERAGE year the stock market might return 7%, but this year it might return 20% or it might lose 10% or a wide range of other possible numbers. (Well, you might have a variable rate mortgage, but there are still usually some defined limits on how much it can vary.) take a look at this graph here: http://mortgagevista.com/#m=1&a=40000&b=4&c=30y&B&oa&ob&oc&od It shows how much it costs to borrow $40k for 30 years. You did not post your mortgage rate or loan term, so I used 4% over 30 years (you can easily update this with your actual details). While this does not show the costs of your total mortgage, it does help you get an idea of just how much the 40k$ in question is costing you in interest. If you hover over the month one year from now you will see that you will have paid around $1587 in interest over the course of the year. If you were to put the full 40k$ toward your mortgage right now, you would avoid having to pay this interest over the next year.  The next question I think you would have to ask yourself is if there is anything else you could do with that money that is worth more than the $1587 to you.  Is it worth $1587 to keep those funds liquid/available in case you need to use them for something else? Could you find other investments you feel comfortable with that could earn you more than $1587?  Is it worth the hassle/risk of investing the funds somewhere else with a better return? If you can't come up with anything better to do with the money then yes, you should probably use the funds (or at least part of them) towards the mortgage.
"I can answer this question for my jurisdiction (Florida, USA), because I lived through it. My Dad (""Alice"") passed away in 2008, just as the housing crisis was starting to heat up. What happened to the Mortgage? My Dad had a will in place.  It was an old will (from the 1980's), but never-the-less, a will.  We had to provide paperwork to the court that my Mom had already passed away, and my oldest brother was living out-of-state (he would have been the executor, otherwise).  With the proper paperwork, I became the Executor, and the property passed in to probate.  At this point, the ""Estate"" was responsible for the house and the mortgage on it (meaning me, as I was the Executor). We decided to sell the house, so we hired a realtor, and set an asking price about $40k over what was owed on it.  As we waited for it to sell, I had to make monthly mortgage payments, and payments to the HOA (otherwise the HOA could put a lien on the property, making it more difficult to sell, should we find a buyer). Is it Automatically Transferred? In most jurisdictions, I would say not ""automatic"".  I definitely had get an estate lawyer and file the proper legal paperwork with the local county courthouse.  Some states have an easier probate process (""Summary Administration"" in Florida), that eases the requirements for small estates. Is Bob expected to pay it off all at once? No, the mortgage holder was happy for me to make payments (out of other estate assets) in lieu of my Dad.  The were earning interest, after all.  This is probably true in most cases. Can the House be Foreclosed on? Yes.  In our case, being 2008, we had a hard time selling the property.  The asking price quickly went from $40k over what was owed, to $20k over, to $10k over, then to being equal to the mortgage value.  Finally, I approached the bank about options.  They suggested a ""Deed in Lieu of Foreclosure"" process.  It was easier for us, and the bank had to pay less lawyers and such.  Otherwise, a ""Deed in Lieu"" is effectively the same as a Foreclosure.  At that point, we stopped making payments.  Eventually, me and all my siblings (the ""heirs"") had to sign the proper paperwork giving the house over to the bank. In our case, the bank did not pursue us (or rather, the Estate) for the difference between final (auction) sale price and the mortgage balance (it was an FHA loan, so the US Government wound up picking up the difference).  From what I understand, this could have happened, and we would have wound up with basically nothing out of the Estate. Can the Lender Force the Sale? I can't give a definite answer on this, but it probably depends.  If you don't pay?  Yes they sure can--it's usually part of the standard mortgage contract!  I see 2 other options:" If you have a 20,000 balance and a 8.75% interest rate, you should be paying between $145 and $150 in interest each month, with the balance going to principal.  (0.0875/12=0.007292, and that times 20,000 is 145.83; as interest is compounded daily, it'll be a little higher than that.)  If the minimum is below $145, then you are not covering the interest; I suspect that is what is happening here, and they're reporting interest paid that wasn't covered in a prior month (assuming you have some months where you only pay the statement minimum, which is less than the total accrued interest). Assuming you're in the US (or most other western countries), your loan servicer should be explaining the exact amount each payment that goes to principal and interest.  I recommend calling them up and finding out exactly why it's not consistent; what should be happening, assuming you pay more than the amount of interest each month, is the interest should go down (very) slowly each month and the amount paying off principal should go up (also slowly).  EG: Etc., until eventually the interest is zero and your loan is paid off.  It probably won't go this quickly for this size of loan - you're only paying off a tiny percentage of principal each month, $50/$20000 or 1/400th - so you won't make too much headway at this rate.   Even adding another $25 would make a huge difference to the length of the loan and the amount of interest paid, but that's another story.   You will eventually at this rate pay off the loan (at $200 a month for all 12 months); this isn't dissimilar to a 30 year mortgage in terms of percent interest to principal (in fact, it's better!).  $50 a month times twelve is $600; 400 payments would take care of it (so a bit over 30 years).  However, as you go you pay more principal and less interest, so you will actually pay it off in 15 years if you continue paying $200 a month exactly. What you may be seeing in your case is a combination of things: In months you pay less (ie, $100, say), the extra $45 in interest needs to go somewhere.  It effectively becomes part of the principal, but from what I've seen that doesn't always happen directly - ie, they account it differently at least for a short time (up to a year, in my experience). This is because of tax laws, if I understand correctly - the amount you pay in interest is tax-deductible, but not the amount of the principal - so it's important for you to have as much called 'interest' as possible.  Thus, if you pay $100 this month and $200 next month, that total of $300 is paying ~$290 of interest and $10 of principal, just as if you'd paid it $150 each month. If you had any penalties, such as for late payments, those come out off the top before interest; they may sometimes take that out as well. All in all, I strongly suggest having an enforced minimum (on your end) of the interest amount at least; that prevents you from being in a situation where your loan grows.  If you can't always hit $200, that's fine; but at least hit $150 every single month.  Otherwise you have a never ending cycle of student loan debt that you really don't want to be in. Separately, on the $1000 payment: As long as you make sure it's not assigned in such a way that the lender only accepts a month's worth at a time (which shouldn't happen, but there are shady lenders), it shouldn't matter what is called 'principal' and what is called 'interest'.  The interest won't go up just because you're making a separate payment (it'll go down!).  The portion that goes to interest will go to paying off the amount of interest you owe from the time of your last payment, plus any accrued but unpaid interest, plus principal.  You won't have the option of not paying that interest, and it doesn't really matter anyway - it's all something you owe and all accruing interest, it only really matters for accounting and taxes.  Double check with your lender (on the phone AND on their website, if possible) that overpayments are not penalized and are applied to principal immediately (or within a few days anyway) and you should be fine. One way to reduce the monthly payment due each month is to do everything to eliminate one of the loans. Make the minimum payment to the others, but put everything into eliminating one of the loans. Of course this assumes that you have separate loans for each year of school.  Make sure that in trying to get aggressive on the loan repayment that you don't neglect the saving for a down payment. Each dollar you can put down will save you money on the mortgage. It might also allow you to reduce the mortgage insurance payments. If you pay one student loan back aggressively but can't eliminate it you might be worse off because you spent your savings but it didn't help you qualify for the mortgage. One way to maximize the impact is to not make the extra payments until you are ready to apply for the mortgage. Ask the lender if you qualify with all the student loans, or if you need to eliminate one. If you don't need to eliminate a loan, then apply the extra funds to a larger down payment or pay points to reduce the interest rate. A lot depends on whether your mortgage payments are interest only or 'repayment' and what the remaining term is on each of the mortgages.  Either way I suspect that the best value for the money you put in will be had by making payments to the larger, newer mortgage.  This is because the quicker you reduce the capital owed the less interest you will pay over the whole term of the mortgage and you've already had the older mortgage for sometime (unless you remortgaged) so the benefit you can get from an arbitrary reduction in the capital is inevitably less than you will get from the same reduction in the capital of the newer mortgage.  Even if the two mortgages are the same age then the benefit of putting money into the one on the new house is greater due to the greater interest charged on it. According the FSCS: If the bank fails FSCS would refund the maximum under our rules (currently £75,000 per person).  Any credit balance over and above this would be offset against the mortgage by the insolvency practitioner responsible for the winding up of the bank. FSCS would play no part in that process. (Unless the savings were larger than the debts, but then it wouldn't make sense to have them in a zero interest offset account!) So the money would not be completely lost as such. Whether that would count as an overpayment is an open question, but perhaps a moot point anyway if the bank went under. (Finally, arguably, a pension or other investment might also be better for such amounts.) "It's a little unusual, but I don't think the financial terms are completely unreasonable on their face. What you describe is similar to an interest-only loan, where you make payments that only cover the interest due each month, and the entire principal is due as a single ""balloon payment"" on a specified date (in this case, the date on which the condo is sold).  Your monthly payment of $500 on a principal of $115K is equivalent to an annual interest rate of 5.22%, which at least is not completely usurious.  With a traditional mortgage you might pay a rate as low as 3%, if you had sufficient income and excellent credit - but I don't know, from what you've said, whether that's the case.  Did you make the current arrangement because you were unable to get a loan from a bank? The main difference here is that instead of the balloon payment being a fixed $115K, it's ""75% of the gross proceeds of the sale"".  If the condo eventually sells for $155K, that would be $116,250, so that's slightly advantageous to them (assuming that ""gross proceeds"" means ""before deducting commissions for either the buyers' or sellers' realtors or any other costs of the sale""), and thus slightly disadvantageous to you.  If the condo appreciates in value, that's more of a win for them and more of a relative loss for you.  But it's also possible that the value of the condo goes down, in which case this arrangement is better for you than a fixed balloon payment.  So this deal does prevent you from getting a larger share of any gains in the value of the property, but it also helps insulate you from any losses.  That's important to keep in mind. There's also the issue of needing their consent to sell.  That's potentially problematic - usually in a joint ownership scheme, either owner has the right to demand to be bought out or to force a sale.  I guess it depends on whether you think your parents would be likely to consent under reasonable circumstances, or to insist on holding the property against your best interests. It's true that you aren't building equity with this arrangement, and if you thought you were, you are mistaken or misled.  But let's compare it with other options. If you would qualify for a traditional 30-year fixed mortgage at 3%, your monthly payment would be slightly lower ($484), and you would be building some equity because your payments would reduce the principal as well as paying the interest.  But a 30-year loan builds equity very slowly at first - after 7 years you'd have only about $20,000 in principal paid down. If we assume that 5.2% represents the interest rate you'd otherwise pay based on your creditworthiness, then your monthly payment would be $631.  So compared to that, you have an extra $130 per month that you can save or invest in whatever you want - you're not forced to invest it in your house. Note that in either case you'd still be paying the condo fees, property taxes, insurance, and maintenance yourself.  So we might as well eliminate those from consideration.   It might be a good idea to find out what other options you would have - perhaps try to get an interest rate quote on a traditional mortgage from a bank, based on your income and credit history.  Then you can decide what to do, taking into account: your financial situation; how much of a monthly payment could you afford? your relationship with your parents; are they likely to be reasonable about renegotiating?  Do they in general tend to respect your wishes?  Would it harm your relationship if you tried to get out of the deal, and how important is that to you? To what extent do you actually want to pay for equity in this property? Do you really believe it's a good investment, and have evidence to support that?   Your options include: Try to renegotiate the terms of the loan from your parents Try to ""refinance"" the loan, by getting a loan from a bank and paying off some agreed-upon amount of principal to your parents Try to force the sale of the condo and move to another house, financing it some other way Consult a lawyer as to whether your agreement with your parents is legally enforceable.  For instance, do they have a lien on the property?" By rounding my house payments up to the nearest $50.00, my 30 year mortgage was paid off in 7 years.  Initially, my mortgage payment was roughly $600, $50 going to principal and $550 going to interest (banker's profits). By paying $650, I was actually doubling the amount I was paying on principal.  Since interest is computed as a function (percentage) of the outstanding principal balance, the amount of my fixed payment that went to interest decreased each month, and the amount that went to principal increased. In 7 years I owned my home free and clear, and started putting the money I had been putting into the mortgage payments into investments. A rule of thumb I have discovered is that it takes half the time to save money to meet a goal that it takes to pay off the same debt. "For the mortgage, you're confusing cause and effect. Loans like mortgages generally have a very simple principle behind them: at any given time, the interest charged at that time is the product of the amount still owing and the interest rate. So for example on a mortgage of $100,000, at an interest rate of 5%, the interest charged for the first year would be $5,000. If you pay the interest plus another $20,000 after the first year, then in the second year the interest charge would be $4,000. This view is a bit of an over-simplification, but it gets the basic point across. [In practice you would actually make payments through the year so the actual balance that interest is charged on would vary. Different mortgages would also treat compounding slightly differently, e.g. the interest might be added to the mortgage balance daily or monthly.] So, it's natural that the interest charged on a mortgage reduces year-by-year as you pay off some of the mortgage. Mortgages are typically setup to have constant payments over the life of the mortgage (an ""amortisation schedule""), calculated so that by the end of the planned mortgage term, you'll have paid off all of the principal. It's a straightforward effect of the way that interest works in general that these schedules incorporate higher interest payments early on in the mortgage, because that's the time when you owe more money. If you go for a 15-year mortgage, each payment will involve you paying off significantly more principal each time than with a 30-year mortgage for the same balance - because with a 15-year mortgage, you need to hit 0 after 15 years, not 30. So since you pay off the principal faster, you naturally pay less interest even when you just compare the first 15 years. In your case what you're talking about is paying off the mortgage using the 30-year payments for the first 15 years, and then suddenly paying off the remaining principal with a lump sum. But when you do that, overall you're still paying off principal later than if it had been a 15-year mortgage to begin with, so you should be charged more interest, because what you've done is not the same as having a 15-year mortgage. You still will save the rest of the interest on the remaining 15 years of the term, unless there are pre-payment penalties. For the car loan I'm not sure what is happening. Perhaps it's the same situation and you just misunderstood how it was explained. Or maybe it's setup with significant pre-payment penalties so you genuinely don't save anything by paying early."