[Christien]

If the mortgage co. applies an extra payment towards "future payments" then what do they do with next month's regular monthly payment? Apply that towards "even-further-into-the-future" payments? Then what happens at the end? Do they refund it to you, plus interest based on however many years ago you made that payment?

Assuming your account is fully up to date, to apply extra payments to anything but principal would likely be illegal. You agree to pay $x per month towards your loan, at a minimum. Of that, $x is the interest owing on your current balance, based at x% per annum, divided by 12 (1 month of interest which is calculated on a per-annum basis). Anything above and beyond that interest MUST go to principal - there's simply nothing else to do with that money that wouldn't fall under the category of embezzlement.