The fast and easy answer may not make you too happy! With most existing loan programs, the answer is no. On most self-amortizing loans (each payment contains an interest payment and principal payment component – with sufficient principal payments to pay the loan off at maturity) – prepayments toward principal will shorten the term of the loan, and thus the amount of interest you will pay over the life of the loan.

This is most evident with fixed rate loan. With adjustable rate loans, reductions in principal (through normal amortization and prepayment- with your bonus $) will affect your payment when the rate resets- although it may not go down if the rate goes up!

Now here are the exceptions…After being in this business for longer than I’d like to admit, I have found that there are often exceptions. The mortgage market is dynamic and programs, underwriting guidelines, etc. are always changing to meet the demands of the marketplace. For example, some lenders offer something called a "recast" feature, right out of the box. These loans allow, with various restrictions, the payment to change with certain prepayments towards principal. Again there may be limitations on this, and not all lenders will offer this feature. If this is something important to you, speak with your mortgage broker or banker in detail about this.

The most obvious “exception” to the standard self-amortizing loan is the interest only loan. Interest only programs will recast pretty much anytime a principal payment is made. Some lenders require a minimum payment amount, or that this recast request is made writing. If you are considering an interest only loan program (the risks and benefits of these require a chapter of their own!) be sure to get detailed information on the recast feature. As interest only loans became very popular, many borrowers, and even some of us in the industry made assumptions that were incorrect as to how and even if, these loan would recast. Popular as they have been recently, interest only loans are not for everyone. Once again, ask questions, lots of questions. Your mortgage broker can be a vital resource to help you make the correct choices between types of loans, and the different flavors offered by different lenders.