Hi Mehran, it sounds like you are already aware that when you first start paying on a loan the portion attributed to interest is quite high and over time this eventually shifts to predominantly being principal payments.
"I'm just wondering how making extra principal payments effects a loan."
Simply put, additional principal payments have the effect of shortening the payoff of a loan from a time perspective and changing the mix of principal and interest in each payment.
"I know the P&I is amortized month by month from the get go. But if an extra payment is made do they recalculate the interest for the rest of the loan at that same moment?
While Lender/Servicer may calculate total projected interest for the rest of the loan period after a principal payment, mechanically, itâ€™s much easier to think of extra principal payments in this way: 1) the interest you pay each month may only be levied against the outstanding principal balance, and 2) assuming you have a fixed loan, your monthly payment will not change; however, the portion attributed to principal and interest will. When you make advance/extra principal payments the interest amount is lower (because the principal amount is lower), and more of the fixed payment goes to principal reduction.
"Or do you have to request it to be recalculated?"
You do not have to request that the amortization be recalculated. However, if you want to keep track of what it should be after a principal payment drop me an email and I'll send you an amortization tool that keeps track.
"I can't find any information on this anywhere."
If you want to make extra principal payments the best thing to do is call the Lender/Servicer and ask when they apply extra principal payments. For example, you may not want to send in a principal payment on the 5th of the month if they will not apply it until the first of the next month.
Now, I do not know your personal financial picture or all your motivations for wanting to make extra principal payments; however, please take a look at the following post as it may provide a bit of an â€œa-haâ€ moment: http://www.trulia.com/voices/Home_Buying/What_is_the_differe