This article explains how to set up monthly principal payments using bank wire transfers, how those payments are applied, and what to expect when sending recurring wired funds.
Table of Contents
- What Is Principal?
- What Is a Monthly Principal Payment?
- What Is a Bank Wire Transfer?
- How to Set Up Monthly Wire Transfers
- How Wire Payments Are Applied
- How Monthly Principal Payments Impact Your Loan
- Important Things to Confirm Before Sending Wires
What Is Principal?
Principal is the original amount borrowed on your loan.
Standard loan payments typically include:
- A portion toward interest
- A portion toward principal
Interest is calculated based on your remaining principal balance. As principal decreases, total interest paid over time decreases as well.
What Is a Monthly Principal Payment?
A monthly principal payment is a recurring payment made in addition to your required loan payment that is applied directly to reduce your loan balance.
This payment does not replace your scheduled payment. It is applied on top of it and reduces principal immediately after processing.
Example:
- Required monthly payment: $2,000
- Monthly principal wire: $1,000
- Total paid each month: $3,000
The additional $1,000 reduces your principal balance directly.
What Is a Bank Wire Transfer?
A bank wire transfer is an electronic transfer of funds sent directly from one financial institution to another.
- Funds are typically processed the same business day.
- Wires are commonly used for larger payments.
- Banks usually charge a wire transfer fee.
Unlike ACH payments, wire transfers must typically be initiated manually or scheduled through your bank.
How to Set Up Monthly Wire Transfers
To establish monthly principal payments via wire:
- Obtain official wire instructions from your loan servicer.
- Verify routing number, account number, and beneficiary name directly with the servicer before sending funds.
- Schedule a recurring monthly wire through your bank (if your bank supports recurring wires), or initiate wires manually each month.
- Include your loan number in the reference or memo field.
- Clearly indicate “Principal Only Payment” in the wire memo or reference field.
⚠️ Always confirm wire instructions verbally or through an official secure channel before sending funds. Wire fraud attempts are common.
How Wire Payments Are Applied
When properly designated as “Principal Only,” wired funds are applied directly to reduce your loan balance.
If no designation is included, funds may:
- Be applied toward future scheduled payments
- Be applied to accrued interest
Processing time may vary depending on receipt time and internal posting procedures.
How Monthly Principal Payments Impact Your Loan
Making consistent monthly principal payments via wire can:
- Reduce your loan balance faster
- Lower total interest paid over the life of the loan
- Shorten your repayment timeline
- Improve your loan-to-value (LTV) ratio
Because interest accrues based on your outstanding principal balance, reducing that balance earlier can produce meaningful long-term savings.
Important Things to Confirm Before Sending Monthly Wires
- Are the wire instructions current and verified?
- Is your loan number included in the reference field?
- Is “Principal Only” clearly indicated?
- Does your bank charge recurring wire fees?
- Are there any prepayment penalties? (Rare, but important to verify.)