Overpaying an adjustable rate mortgage can reduce your monthly mortgage payment but only when the loan adjusts. Paying more than your required monthly payment is also called mortgage acceleration. We provide a thorough overview of Mortgage Acceleration for an Adjustable Rate Mortgage (ARM) on FREEandCLEAR for you to review.
In short, the monthly payment for an ARM can only change when the mortgage rate adjusts. So if you overplay your loan during the initial fixed rate period of an ARM (for example, in year three of a 5/1 ARM), then you would not realize the benefit of a potentially lower monthly payment until the end of year five of the loan when the loan converts into an adjustable rate mortgage and the mortgage rate adjusts. If you accelerate your loan during the adjustable rate period of an ARM (for example, in year seven of a 5/1 ARM), then your required monthly mortgage payment could go down when the mortgage rate adjusts at the next adjustment period (usually every year or six months).
Please note that overpaying your mortgage is only one of several factors that determines the monthly payment for an ARM. Because the mortgage rate for an ARM is subject to change, your monthly payment may not decrease as much as expected and can potentially go up if your mortgage rate increases, even if you accelerate your loan. Accelerating your mortgage, however, always reduces the length of your loan and saves you money in total interest over the life of your loan, as compared to not accelerating your mortgage.