The Mortgage Amortization Calculator provides an annual or monthly amortization schedule of a mortgage loan. It also calculates the monthly payment amount and determines the portion of one's payment going to interest. Having such knowledge gives the borrower a better idea of how each payment affects a loan. It also shows how fast the overall debt falls at a given time.
Monthly Pay: $2,652.62
Monthly
Total
Mortgage Payment
$2,652.62
$954,942.88
Property Tax
$500.00
$180,000.00
Home Insurance
$208.33
$75,000.00
Other Costs
$416.67
$150,000.00
Total Out-of-Pocket
$3,777.62
$1,359,942.88
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$954,942.88
Total Interest
$554,942.88
Mortgage Payoff Date
May. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
05/2024
$2,323
$330
$399,670
2
6/2024
$2,321
$332
$399,338
3
7/2024
$2,319
$334
$399,004
4
8/2024
$2,317
$336
$398,669
5
9/2024
$2,315
$338
$398,331
6
10/2024
$2,313
$340
$397,991
7
11/2024
$2,311
$342
$397,650
8
12/2024
$2,309
$344
$397,306
9
1/2025
$2,307
$346
$396,961
10
2/2025
$2,305
$348
$396,613
11
3/2025
$2,303
$350
$396,263
12
4/2025
$2,301
$352
$395,912
End of year 1
13
5/2025
$2,299
$354
$395,558
14
6/2025
$2,297
$356
$395,202
15
7/2025
$2,295
$358
$394,844
16
8/2025
$2,293
$360
$394,485
17
9/2025
$2,291
$362
$394,123
18
10/2025
$2,289
$364
$393,758
19
11/2025
$2,286
$366
$393,392
20
12/2025
$2,284
$368
$393,024
21
1/2026
$2,282
$370
$392,653
22
2/2026
$2,280
$373
$392,281
23
3/2026
$2,278
$375
$391,906
24
4/2026
$2,276
$377
$391,529
End of year 2
25
5/2026
$2,273
$379
$391,150
26
6/2026
$2,271
$381
$390,769
27
7/2026
$2,269
$384
$390,385
28
8/2026
$2,267
$386
$389,999
29
9/2026
$2,265
$388
$389,611
30
10/2026
$2,262
$390
$389,221
31
11/2026
$2,260
$393
$388,828
32
12/2026
$2,258
$395
$388,434
33
1/2027
$2,256
$397
$388,037
34
2/2027
$2,253
$399
$387,637
35
3/2027
$2,251
$402
$387,235
36
4/2027
$2,249
$404
$386,831
End of year 3
37
5/2027
$2,246
$406
$386,425
38
6/2027
$2,244
$409
$386,016
39
7/2027
$2,241
$411
$385,605
40
8/2027
$2,239
$414
$385,191
41
9/2027
$2,237
$416
$384,775
42
10/2027
$2,234
$418
$384,357
43
11/2027
$2,232
$421
$383,936
44
12/2027
$2,229
$423
$383,513
45
1/2028
$2,227
$426
$383,087
46
2/2028
$2,224
$428
$382,659
47
3/2028
$2,222
$431
$382,229
48
4/2028
$2,219
$433
$381,795
End of year 4
49
5/2028
$2,217
$436
$381,360
50
6/2028
$2,214
$438
$380,922
51
7/2028
$2,212
$441
$380,481
52
8/2028
$2,209
$443
$380,038
53
9/2028
$2,207
$446
$379,592
54
10/2028
$2,204
$448
$379,143
55
11/2028
$2,202
$451
$378,692
56
12/2028
$2,199
$454
$378,239
57
1/2029
$2,196
$456
$377,782
58
2/2029
$2,194
$459
$377,323
59
3/2029
$2,191
$462
$376,862
60
4/2029
$2,188
$464
$376,397
End of year 5
61
5/2029
$2,186
$467
$375,930
62
6/2029
$2,183
$470
$375,461
63
7/2029
$2,180
$472
$374,988
64
8/2029
$2,177
$475
$374,513
65
9/2029
$2,175
$478
$374,035
66
10/2029
$2,172
$481
$373,554
67
11/2029
$2,169
$484
$373,071
68
12/2029
$2,166
$486
$372,584
69
1/2030
$2,163
$489
$372,095
70
2/2030
$2,161
$492
$371,603
71
3/2030
$2,158
$495
$371,108
72
4/2030
$2,155
$498
$370,611
End of year 6
73
5/2030
$2,152
$501
$370,110
74
6/2030
$2,149
$504
$369,607
75
7/2030
$2,146
$506
$369,100
76
8/2030
$2,143
$509
$368,591
77
9/2030
$2,140
$512
$368,078
78
10/2030
$2,137
$515
$367,563
79
11/2030
$2,134
$518
$367,045
80
12/2030
$2,131
$521
$366,524
81
1/2031
$2,128
$524
$365,999
82
2/2031
$2,125
$527
$365,472
83
3/2031
$2,122
$530
$364,941
84
4/2031
$2,119
$534
$364,408
End of year 7
85
5/2031
$2,116
$537
$363,871
86
6/2031
$2,113
$540
$363,332
87
7/2031
$2,110
$543
$362,789
88
8/2031
$2,107
$546
$362,243
89
9/2031
$2,103
$549
$361,693
90
10/2031
$2,100
$552
$361,141
91
11/2031
$2,097
$556
$360,585
92
12/2031
$2,094
$559
$360,027
93
1/2032
$2,091
$562
$359,465
94
2/2032
$2,087
$565
$358,899
95
3/2032
$2,084
$569
$358,331
96
4/2032
$2,081
$572
$357,759
End of year 8
97
5/2032
$2,077
$575
$357,183
98
6/2032
$2,074
$579
$356,605
99
7/2032
$2,071
$582
$356,023
100
8/2032
$2,067
$585
$355,438
101
9/2032
$2,064
$589
$354,849
102
10/2032
$2,060
$592
$354,257
103
11/2032
$2,057
$596
$353,661
104
12/2032
$2,054
$599
$353,062
105
1/2033
$2,050
$603
$352,460
106
2/2033
$2,047
$606
$351,854
107
3/2033
$2,043
$610
$351,244
108
4/2033
$2,040
$613
$350,631
End of year 9
109
5/2033
$2,036
$617
$350,014
110
6/2033
$2,032
$620
$349,394
111
7/2033
$2,029
$624
$348,770
112
8/2033
$2,025
$627
$348,143
113
9/2033
$2,022
$631
$347,512
114
10/2033
$2,018
$635
$346,877
115
11/2033
$2,014
$638
$346,239
116
12/2033
$2,010
$642
$345,597
117
1/2034
$2,007
$646
$344,951
118
2/2034
$2,003
$650
$344,301
119
3/2034
$1,999
$653
$343,648
120
4/2034
$1,995
$657
$342,991
End of year 10
121
5/2034
$1,992
$661
$342,330
122
6/2034
$1,988
$665
$341,665
123
7/2034
$1,984
$669
$340,996
124
8/2034
$1,980
$673
$340,324
125
9/2034
$1,976
$676
$339,647
126
10/2034
$1,972
$680
$338,967
127
11/2034
$1,968
$684
$338,282
128
12/2034
$1,964
$688
$337,594
129
1/2035
$1,960
$692
$336,902
130
2/2035
$1,956
$696
$336,205
131
3/2035
$1,952
$700
$335,505
132
4/2035
$1,948
$704
$334,801
End of year 11
133
5/2035
$1,944
$709
$334,092
134
6/2035
$1,940
$713
$333,379
135
7/2035
$1,936
$717
$332,663
136
8/2035
$1,932
$721
$331,942
137
9/2035
$1,927
$725
$331,216
138
10/2035
$1,923
$729
$330,487
139
11/2035
$1,919
$734
$329,754
140
12/2035
$1,915
$738
$329,016
141
1/2036
$1,910
$742
$328,274
142
2/2036
$1,906
$746
$327,527
143
3/2036
$1,902
$751
$326,776
144
4/2036
$1,897
$755
$326,021
End of year 12
145
5/2036
$1,893
$760
$325,262
146
6/2036
$1,889
$764
$324,498
147
7/2036
$1,884
$768
$323,729
148
8/2036
$1,880
$773
$322,957
149
9/2036
$1,875
$777
$322,179
150
10/2036
$1,871
$782
$321,397
151
11/2036
$1,866
$786
$320,611
152
12/2036
$1,862
$791
$319,820
153
1/2037
$1,857
$796
$319,025
154
2/2037
$1,852
$800
$318,224
155
3/2037
$1,848
$805
$317,420
156
4/2037
$1,843
$809
$316,610
End of year 13
157
5/2037
$1,838
$814
$315,796
158
6/2037
$1,834
$819
$314,977
159
7/2037
$1,829
$824
$314,153
160
8/2037
$1,824
$828
$313,325
161
9/2037
$1,819
$833
$312,492
162
10/2037
$1,815
$838
$311,654
163
11/2037
$1,810
$843
$310,811
164
12/2037
$1,805
$848
$309,963
165
1/2038
$1,800
$853
$309,110
166
2/2038
$1,795
$858
$308,252
167
3/2038
$1,790
$863
$307,390
168
4/2038
$1,785
$868
$306,522
End of year 14
169
5/2038
$1,780
$873
$305,649
170
6/2038
$1,775
$878
$304,771
171
7/2038
$1,770
$883
$303,888
172
8/2038
$1,765
$888
$303,000
173
9/2038
$1,759
$893
$302,107
174
10/2038
$1,754
$898
$301,209
175
11/2038
$1,749
$904
$300,305
176
12/2038
$1,744
$909
$299,396
177
1/2039
$1,738
$914
$298,482
178
2/2039
$1,733
$919
$297,563
179
3/2039
$1,728
$925
$296,638
180
4/2039
$1,722
$930
$295,708
End of year 15
181
5/2039
$1,717
$936
$294,772
182
6/2039
$1,712
$941
$293,831
183
7/2039
$1,706
$946
$292,885
184
8/2039
$1,701
$952
$291,933
185
9/2039
$1,695
$957
$290,976
186
10/2039
$1,690
$963
$290,013
187
11/2039
$1,684
$969
$289,044
188
12/2039
$1,678
$974
$288,070
189
1/2040
$1,673
$980
$287,090
190
2/2040
$1,667
$986
$286,104
191
3/2040
$1,661
$991
$285,113
192
4/2040
$1,656
$997
$284,116
End of year 16
193
5/2040
$1,650
$1,003
$283,113
194
6/2040
$1,644
$1,009
$282,104
195
7/2040
$1,638
$1,015
$281,090
196
8/2040
$1,632
$1,020
$280,069
197
9/2040
$1,626
$1,026
$279,043
198
10/2040
$1,620
$1,032
$278,011
199
11/2040
$1,614
$1,038
$276,972
200
12/2040
$1,608
$1,044
$275,928
201
1/2041
$1,602
$1,050
$274,878
202
2/2041
$1,596
$1,056
$273,821
203
3/2041
$1,590
$1,063
$272,759
204
4/2041
$1,584
$1,069
$271,690
End of year 17
205
5/2041
$1,578
$1,075
$270,615
206
6/2041
$1,571
$1,081
$269,534
207
7/2041
$1,565
$1,088
$268,446
208
8/2041
$1,559
$1,094
$267,352
209
9/2041
$1,552
$1,100
$266,252
210
10/2041
$1,546
$1,107
$265,145
211
11/2041
$1,540
$1,113
$264,032
212
12/2041
$1,533
$1,119
$262,913
213
1/2042
$1,527
$1,126
$261,787
214
2/2042
$1,520
$1,133
$260,654
215
3/2042
$1,514
$1,139
$259,515
216
4/2042
$1,507
$1,146
$258,370
End of year 18
217
5/2042
$1,500
$1,152
$257,217
218
6/2042
$1,494
$1,159
$256,058
219
7/2042
$1,487
$1,166
$254,892
220
8/2042
$1,480
$1,173
$253,720
221
9/2042
$1,473
$1,179
$252,541
222
10/2042
$1,466
$1,186
$251,354
223
11/2042
$1,460
$1,193
$250,161
224
12/2042
$1,453
$1,200
$248,961
225
1/2043
$1,446
$1,207
$247,754
226
2/2043
$1,439
$1,214
$246,540
227
3/2043
$1,432
$1,221
$245,319
228
4/2043
$1,424
$1,228
$244,091
End of year 19
229
5/2043
$1,417
$1,235
$242,856
230
6/2043
$1,410
$1,242
$241,613
231
7/2043
$1,403
$1,250
$240,364
232
8/2043
$1,396
$1,257
$239,107
233
9/2043
$1,388
$1,264
$237,843
234
10/2043
$1,381
$1,272
$236,571
235
11/2043
$1,374
$1,279
$235,292
236
12/2043
$1,366
$1,286
$234,006
237
1/2044
$1,359
$1,294
$232,712
238
2/2044
$1,351
$1,301
$231,411
239
3/2044
$1,344
$1,309
$230,102
240
4/2044
$1,336
$1,316
$228,785
End of year 20
241
5/2044
$1,328
$1,324
$227,461
242
6/2044
$1,321
$1,332
$226,129
243
7/2044
$1,313
$1,340
$224,790
244
8/2044
$1,305
$1,347
$223,442
245
9/2044
$1,297
$1,355
$222,087
246
10/2044
$1,290
$1,363
$220,724
247
11/2044
$1,282
$1,371
$219,353
248
12/2044
$1,274
$1,379
$217,974
249
1/2045
$1,266
$1,387
$216,587
250
2/2045
$1,258
$1,395
$215,192
251
3/2045
$1,250
$1,403
$213,789
252
4/2045
$1,241
$1,411
$212,378
End of year 21
253
5/2045
$1,233
$1,419
$210,959
254
6/2045
$1,225
$1,428
$209,531
255
7/2045
$1,217
$1,436
$208,095
256
8/2045
$1,208
$1,444
$206,651
257
9/2045
$1,200
$1,453
$205,198
258
10/2045
$1,192
$1,461
$203,737
259
11/2045
$1,183
$1,470
$202,268
260
12/2045
$1,175
$1,478
$200,789
261
1/2046
$1,166
$1,487
$199,303
262
2/2046
$1,157
$1,495
$197,807
263
3/2046
$1,149
$1,504
$196,303
264
4/2046
$1,140
$1,513
$194,791
End of year 22
265
5/2046
$1,131
$1,522
$193,269
266
6/2046
$1,122
$1,530
$191,739
267
7/2046
$1,113
$1,539
$190,199
268
8/2046
$1,104
$1,548
$188,651
269
9/2046
$1,095
$1,557
$187,094
270
10/2046
$1,086
$1,566
$185,528
271
11/2046
$1,077
$1,575
$183,953
272
12/2046
$1,068
$1,584
$182,368
273
1/2047
$1,059
$1,594
$180,774
274
2/2047
$1,050
$1,603
$179,171
275
3/2047
$1,040
$1,612
$177,559
276
4/2047
$1,031
$1,622
$175,938
End of year 23
277
5/2047
$1,022
$1,631
$174,307
278
6/2047
$1,012
$1,640
$172,666
279
7/2047
$1,003
$1,650
$171,016
280
8/2047
$993
$1,660
$169,357
281
9/2047
$983
$1,669
$167,687
282
10/2047
$974
$1,679
$166,008
283
11/2047
$964
$1,689
$164,320
284
12/2047
$954
$1,698
$162,621
285
1/2048
$944
$1,708
$160,913
286
2/2048
$934
$1,718
$159,195
287
3/2048
$924
$1,728
$157,466
288
4/2048
$914
$1,738
$155,728
End of year 24
289
5/2048
$904
$1,748
$153,980
290
6/2048
$894
$1,759
$152,221
291
7/2048
$884
$1,769
$150,453
292
8/2048
$874
$1,779
$148,674
293
9/2048
$863
$1,789
$146,884
294
10/2048
$853
$1,800
$145,085
295
11/2048
$842
$1,810
$143,274
296
12/2048
$832
$1,821
$141,454
297
1/2049
$821
$1,831
$139,623
298
2/2049
$811
$1,842
$137,781
299
3/2049
$800
$1,853
$135,928
300
4/2049
$789
$1,863
$134,065
End of year 25
301
5/2049
$778
$1,874
$132,191
302
6/2049
$768
$1,885
$130,306
303
7/2049
$757
$1,896
$128,410
304
8/2049
$746
$1,907
$126,503
305
9/2049
$735
$1,918
$124,585
306
10/2049
$723
$1,929
$122,655
307
11/2049
$712
$1,940
$120,715
308
12/2049
$701
$1,952
$118,763
309
1/2050
$690
$1,963
$116,800
310
2/2050
$678
$1,974
$114,826
311
3/2050
$667
$1,986
$112,840
312
4/2050
$655
$1,997
$110,843
End of year 26
313
5/2050
$644
$2,009
$108,834
314
6/2050
$632
$2,021
$106,813
315
7/2050
$620
$2,032
$104,781
316
8/2050
$608
$2,044
$102,736
317
9/2050
$597
$2,056
$100,680
318
10/2050
$585
$2,068
$98,612
319
11/2050
$573
$2,080
$96,532
320
12/2050
$561
$2,092
$94,440
321
1/2051
$548
$2,104
$92,336
322
2/2051
$536
$2,116
$90,220
323
3/2051
$524
$2,129
$88,091
324
4/2051
$512
$2,141
$85,950
End of year 27
325
5/2051
$499
$2,154
$83,796
326
6/2051
$487
$2,166
$81,630
327
7/2051
$474
$2,179
$79,451
328
8/2051
$461
$2,191
$77,260
329
9/2051
$449
$2,204
$75,056
330
10/2051
$436
$2,217
$72,839
331
11/2051
$423
$2,230
$70,610
332
12/2051
$410
$2,243
$68,367
333
1/2052
$397
$2,256
$66,112
334
2/2052
$384
$2,269
$63,843
335
3/2052
$371
$2,282
$61,561
336
4/2052
$357
$2,295
$59,266
End of year 28
337
5/2052
$344
$2,308
$56,957
338
6/2052
$331
$2,322
$54,635
339
7/2052
$317
$2,335
$52,300
340
8/2052
$304
$2,349
$49,951
341
9/2052
$290
$2,363
$47,588
342
10/2052
$276
$2,376
$45,212
343
11/2052
$263
$2,390
$42,822
344
12/2052
$249
$2,404
$40,418
345
1/2053
$235
$2,418
$38,000
346
2/2053
$221
$2,432
$35,568
347
3/2053
$207
$2,446
$33,122
348
4/2053
$192
$2,460
$30,662
End of year 29
349
5/2053
$178
$2,475
$28,187
350
6/2053
$164
$2,489
$25,698
351
7/2053
$149
$2,503
$23,195
352
8/2053
$135
$2,518
$20,677
353
9/2053
$120
$2,533
$18,144
354
10/2053
$105
$2,547
$15,597
355
11/2053
$91
$2,562
$13,035
356
12/2053
$76
$2,577
$10,458
357
1/2054
$61
$2,592
$7,866
358
2/2054
$46
$2,607
$5,259
359
3/2054
$31
$2,622
$2,637
360
4/2054
$15
$2,637
$-0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
5/24-4/25
$27,743
$4,088
$395,912
2
5/25-4/26
$27,449
$4,383
$391,529
3
5/26-4/27
$27,134
$4,698
$386,831
4
5/27-4/28
$26,796
$5,036
$381,795
5
5/28-4/29
$26,433
$5,398
$376,397
6
5/29-4/30
$26,045
$5,787
$370,611
7
5/30-4/31
$25,629
$6,203
$364,408
8
5/31-4/32
$25,182
$6,649
$357,759
9
5/32-4/33
$24,704
$7,128
$350,631
10
5/33-4/34
$24,191
$7,640
$342,991
11
5/34-4/35
$23,641
$8,190
$334,801
12
5/35-4/36
$23,052
$8,779
$326,021
13
5/36-4/37
$22,420
$9,411
$316,610
14
5/37-4/38
$21,743
$10,088
$306,522
15
5/38-4/39
$21,017
$10,814
$295,708
16
5/39-4/40
$20,239
$11,592
$284,116
17
5/40-4/41
$19,405
$12,426
$271,690
18
5/41-4/42
$18,511
$13,320
$258,370
19
5/42-4/43
$17,553
$14,279
$244,091
20
5/43-4/44
$16,526
$15,306
$228,785
21
5/44-4/45
$15,424
$16,407
$212,378
22
5/45-4/46
$14,244
$17,588
$194,791
23
5/46-4/47
$12,978
$18,853
$175,938
24
5/47-4/48
$11,622
$20,209
$155,728
25
5/48-4/49
$10,168
$21,663
$134,065
26
5/49-4/50
$8,609
$23,222
$110,843
27
5/50-4/51
$6,938
$24,893
$85,950
28
5/51-4/52
$5,147
$26,684
$59,266
29
5/52-4/53
$3,228
$28,604
$30,662
30
5/53-4/54
$1,170
$30,662
$-0
What Is Amortization?
In the context of a loan, amortization is a way of spreading the loan into a series of payments over a period of time. Using this technique, the loan balance will fall with each payment, and the borrower will pay off the balance after completing the series of scheduled payments.
Banks amortize many consumer-facing loans such as home mortgage loans, auto loans, and personal loans. Nonetheless, our mortgage amortization calculator is specially designed for home mortgage loans.
In most cases, the amortized payments are fixed monthly payments spread evenly throughout the loan term. Each payment is composed of two parts, interest and principal. Interest is the fee for borrowing the money, usually a percentage of the outstanding loan balance. The principal is the portion of the payment devoted to paying down the loan balance.
Over time, the balance of the loan falls as the principal repayment gradually increases. In other words, the interest portion of each payment will decrease as the loan's remaining principal balance falls. As the borrower approaches the end of the loan term, the bank will apply nearly all of the payment to reducing principal.
The amortization table below illustrates this process, calculating the fixed monthly payback amount and providing an annual or monthly amortization schedule of the loan. For example, a bank would amortize a five-year, $20,000 loan at a 5% interest rate into payments of $377.42 per month for five years.
Month
Beginning Balance
Payment
Interest
Principal
Ending Balance
1
$20,000.00
$377.42
$83.33
$294.09
$19,705.91
2
$19,705.91
$377.42
$82.11
$295.31
$19,410.59
3
$19,410.59
$377.42
$80.88
$296.54
$19,114.04
4
$19,114.04
$377.42
$79.64
$297.78
$18,816.26
...
...
...
...
...
...
58
$1,122.90
$377.42
$4.68
$372.74
$750.16
59
$750.16
$377.42
$3.13
$374.29
$375.86
60
$375.86
$377.42
$1.57
$375.85
$0.00
The calculator can also estimate other costs associated with homeownership, giving the borrower a more accurate financial picture of the costs associated with owning a home.
Amortizing a Mortgage Faster and Saving Money
In many situations, a borrower may want to pay off a mortgage earlier to save on interest, gain freedom from debt, or other reasons.
However, lengthier loans help to boost the profit of the lending banks. The amortization table shows how a loan can concentrate the larger interest payments towards the beginning of the loan, increasing a bank's revenue. Moreover, some loan contracts may not explicitly permit some loan reduction techniques. Thus, a borrower may first need to check with the lending bank to see if utilizing such strategies is allowed.
Nonetheless, assuming a mortgage agreement allows for faster repayment, a borrower can employ the following techniques to reduce mortgage balances more quickly and save money:
Increasing Regular Payments
One way to pay off a mortgage faster is to make small additional payments each month. This technique can save borrowers a considerable amount of money.
For example, a borrower who has a $150,000 mortgage amortized over 25 years at an interest rate of 5.45% can pay it off 2.5 years sooner by paying an extra $50 a month over the life of the mortgage. This would result in a savings of over $14,000.
Accelerating Payments
Most financial institutions offer several payment frequency options besides making one payment per month. Switching to a more frequent mode of payment, such as biweekly payments, has the effect of a borrower making an extra annual payment. This will result in significant savings on a mortgage.
For example, suppose a borrower has a $150,000 mortgage amortized over 25 years with an interest rate of 6.45% repaid in biweekly rather than monthly installments. By paying half of the monthly amount every two weeks, that person can save nearly $30,000 over the life of the loan.
Making Lump Sum Payments or Prepayments
A prepayment is a lump sum payment made in addition to regular mortgage installments. These additional payments reduce the outstanding balance of a mortgage, resulting in a shorter mortgage term. The earlier a borrower makes prepayments, the more it reduces the overall interest paid, typically leading to quicker mortgage repayment.
Nonetheless, borrowers should keep in mind that banks may impose stipulations governing prepayments since they reduce a bank's earnings on a given mortgage. These conditions may consist of a penalty for prepayments, a cap on how much borrowers can pay in a lump sum form, or a minimum amount specified for prepayments. If such conditions exist, a bank will usually spell them out in the mortgage agreement.
Refinancing a Mortgage
Refinancing involves replacing an existing mortgage with a new mortgage loan contract. While this usually means a different interest rate and new loan conditions, it also involves a new application, an underwriting process, and a closing, amounting to significant fees and other costs.
Despite these challenges, refinancing can benefit borrowers, but they should weigh the comparison carefully and read any new agreement thoroughly.
Drawbacks of Amortizing a Mortgage Faster
Before paying back a mortgage early, borrowers should also understand the disadvantages of paying ahead on a mortgage. Overall, mortgage rates are relatively low compared to the interest rates on other loan types such as personal loans or credit cards. Hence, paying ahead on a mortgage means the borrower cannot use the money to invest and make higher returns elsewhere. In other words, a borrower can incur a significant opportunity cost by paying off a mortgage with a 4% interest rate when they could earn a 10% return by investing that money.
Prepayment penalties or lost mortgage interest deductions on tax returns are other examples of opportunity costs. Borrowers should consider such factors before making additional payments.