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: $2,670.62
Monthly
Total
Mortgage Payment
$2,670.62
$961,422.83
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
$3,795.62
$1,366,422.83
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$961,422.83
Total Interest
$561,422.83
Mortgage Payoff Date
May. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
05/2024
$2,345
$326
$399,674
2
6/2024
$2,343
$328
$399,347
3
7/2024
$2,341
$329
$399,017
4
8/2024
$2,339
$331
$398,686
5
9/2024
$2,337
$333
$398,353
6
10/2024
$2,335
$335
$398,017
7
11/2024
$2,333
$337
$397,680
8
12/2024
$2,331
$339
$397,341
9
1/2025
$2,329
$341
$397,000
10
2/2025
$2,327
$343
$396,657
11
3/2025
$2,325
$345
$396,311
12
4/2025
$2,323
$347
$395,964
End of year 1
13
5/2025
$2,321
$349
$395,615
14
6/2025
$2,319
$351
$395,263
15
7/2025
$2,317
$353
$394,910
16
8/2025
$2,315
$355
$394,555
17
9/2025
$2,313
$358
$394,197
18
10/2025
$2,311
$360
$393,837
19
11/2025
$2,309
$362
$393,476
20
12/2025
$2,307
$364
$393,112
21
1/2026
$2,305
$366
$392,746
22
2/2026
$2,302
$368
$392,378
23
3/2026
$2,300
$370
$392,007
24
4/2026
$2,298
$372
$391,635
End of year 2
25
5/2026
$2,296
$375
$391,260
26
6/2026
$2,294
$377
$390,883
27
7/2026
$2,292
$379
$390,504
28
8/2026
$2,289
$381
$390,123
29
9/2026
$2,287
$384
$389,740
30
10/2026
$2,285
$386
$389,354
31
11/2026
$2,283
$388
$388,966
32
12/2026
$2,280
$390
$388,575
33
1/2027
$2,278
$393
$388,183
34
2/2027
$2,276
$395
$387,788
35
3/2027
$2,273
$397
$387,391
36
4/2027
$2,271
$400
$386,991
End of year 3
37
5/2027
$2,269
$402
$386,589
38
6/2027
$2,266
$404
$386,185
39
7/2027
$2,264
$407
$385,778
40
8/2027
$2,262
$409
$385,369
41
9/2027
$2,259
$411
$384,958
42
10/2027
$2,257
$414
$384,544
43
11/2027
$2,254
$416
$384,128
44
12/2027
$2,252
$419
$383,709
45
1/2028
$2,249
$421
$383,288
46
2/2028
$2,247
$424
$382,865
47
3/2028
$2,245
$426
$382,439
48
4/2028
$2,242
$429
$382,010
End of year 4
49
5/2028
$2,240
$431
$381,579
50
6/2028
$2,237
$434
$381,145
51
7/2028
$2,234
$436
$380,709
52
8/2028
$2,232
$439
$380,270
53
9/2028
$2,229
$441
$379,829
54
10/2028
$2,227
$444
$379,385
55
11/2028
$2,224
$446
$378,939
56
12/2028
$2,222
$449
$378,490
57
1/2029
$2,219
$452
$378,038
58
2/2029
$2,216
$454
$377,584
59
3/2029
$2,214
$457
$377,127
60
4/2029
$2,211
$460
$376,667
End of year 5
61
5/2029
$2,208
$462
$376,204
62
6/2029
$2,205
$465
$375,739
63
7/2029
$2,203
$468
$375,271
64
8/2029
$2,200
$471
$374,801
65
9/2029
$2,197
$473
$374,328
66
10/2029
$2,194
$476
$373,851
67
11/2029
$2,192
$479
$373,373
68
12/2029
$2,189
$482
$372,891
69
1/2030
$2,186
$485
$372,406
70
2/2030
$2,183
$487
$371,919
71
3/2030
$2,180
$490
$371,429
72
4/2030
$2,178
$493
$370,935
End of year 6
73
5/2030
$2,175
$496
$370,439
74
6/2030
$2,172
$499
$369,941
75
7/2030
$2,169
$502
$369,439
76
8/2030
$2,166
$505
$368,934
77
9/2030
$2,163
$508
$368,426
78
10/2030
$2,160
$511
$367,915
79
11/2030
$2,157
$514
$367,402
80
12/2030
$2,154
$517
$366,885
81
1/2031
$2,151
$520
$366,365
82
2/2031
$2,148
$523
$365,842
83
3/2031
$2,145
$526
$365,317
84
4/2031
$2,142
$529
$364,788
End of year 7
85
5/2031
$2,139
$532
$364,256
86
6/2031
$2,135
$535
$363,720
87
7/2031
$2,132
$538
$363,182
88
8/2031
$2,129
$541
$362,641
89
9/2031
$2,126
$545
$362,096
90
10/2031
$2,123
$548
$361,548
91
11/2031
$2,120
$551
$360,997
92
12/2031
$2,116
$554
$360,443
93
1/2032
$2,113
$558
$359,885
94
2/2032
$2,110
$561
$359,325
95
3/2032
$2,107
$564
$358,760
96
4/2032
$2,103
$567
$358,193
End of year 8
97
5/2032
$2,100
$571
$357,622
98
6/2032
$2,097
$574
$357,048
99
7/2032
$2,093
$577
$356,471
100
8/2032
$2,090
$581
$355,890
101
9/2032
$2,086
$584
$355,306
102
10/2032
$2,083
$588
$354,718
103
11/2032
$2,080
$591
$354,127
104
12/2032
$2,076
$595
$353,533
105
1/2033
$2,073
$598
$352,935
106
2/2033
$2,069
$602
$352,333
107
3/2033
$2,066
$605
$351,728
108
4/2033
$2,062
$609
$351,119
End of year 9
109
5/2033
$2,058
$612
$350,507
110
6/2033
$2,055
$616
$349,891
111
7/2033
$2,051
$619
$349,272
112
8/2033
$2,048
$623
$348,649
113
9/2033
$2,044
$627
$348,022
114
10/2033
$2,040
$630
$347,392
115
11/2033
$2,037
$634
$346,758
116
12/2033
$2,033
$638
$346,120
117
1/2034
$2,029
$641
$345,479
118
2/2034
$2,025
$645
$344,833
119
3/2034
$2,022
$649
$344,184
120
4/2034
$2,018
$653
$343,532
End of year 10
121
5/2034
$2,014
$657
$342,875
122
6/2034
$2,010
$661
$342,214
123
7/2034
$2,006
$664
$341,550
124
8/2034
$2,002
$668
$340,882
125
9/2034
$1,998
$672
$340,210
126
10/2034
$1,994
$676
$339,533
127
11/2034
$1,991
$680
$338,853
128
12/2034
$1,987
$684
$338,169
129
1/2035
$1,983
$688
$337,481
130
2/2035
$1,978
$692
$336,789
131
3/2035
$1,974
$696
$336,093
132
4/2035
$1,970
$700
$335,393
End of year 11
133
5/2035
$1,966
$704
$334,688
134
6/2035
$1,962
$709
$333,980
135
7/2035
$1,958
$713
$333,267
136
8/2035
$1,954
$717
$332,550
137
9/2035
$1,950
$721
$331,829
138
10/2035
$1,945
$725
$331,104
139
11/2035
$1,941
$730
$330,374
140
12/2035
$1,937
$734
$329,640
141
1/2036
$1,933
$738
$328,902
142
2/2036
$1,928
$742
$328,160
143
3/2036
$1,924
$747
$327,413
144
4/2036
$1,919
$751
$326,662
End of year 12
145
5/2036
$1,915
$756
$325,906
146
6/2036
$1,911
$760
$325,146
147
7/2036
$1,906
$764
$324,382
148
8/2036
$1,902
$769
$323,613
149
9/2036
$1,897
$773
$322,840
150
10/2036
$1,893
$778
$322,062
151
11/2036
$1,888
$783
$321,279
152
12/2036
$1,883
$787
$320,492
153
1/2037
$1,879
$792
$319,700
154
2/2037
$1,874
$796
$318,904
155
3/2037
$1,870
$801
$318,103
156
4/2037
$1,865
$806
$317,297
End of year 13
157
5/2037
$1,860
$810
$316,487
158
6/2037
$1,855
$815
$315,671
159
7/2037
$1,851
$820
$314,851
160
8/2037
$1,846
$825
$314,027
161
9/2037
$1,841
$830
$313,197
162
10/2037
$1,836
$835
$312,363
163
11/2037
$1,831
$839
$311,523
164
12/2037
$1,826
$844
$310,679
165
1/2038
$1,821
$849
$309,830
166
2/2038
$1,816
$854
$308,975
167
3/2038
$1,811
$859
$308,116
168
4/2038
$1,806
$864
$307,252
End of year 14
169
5/2038
$1,801
$869
$306,382
170
6/2038
$1,796
$874
$305,508
171
7/2038
$1,791
$880
$304,628
172
8/2038
$1,786
$885
$303,744
173
9/2038
$1,781
$890
$302,854
174
10/2038
$1,775
$895
$301,959
175
11/2038
$1,770
$900
$301,058
176
12/2038
$1,765
$906
$300,153
177
1/2039
$1,760
$911
$299,242
178
2/2039
$1,754
$916
$298,325
179
3/2039
$1,749
$922
$297,404
180
4/2039
$1,744
$927
$296,476
End of year 15
181
5/2039
$1,738
$933
$295,544
182
6/2039
$1,733
$938
$294,606
183
7/2039
$1,727
$943
$293,662
184
8/2039
$1,722
$949
$292,713
185
9/2039
$1,716
$955
$291,759
186
10/2039
$1,710
$960
$290,799
187
11/2039
$1,705
$966
$289,833
188
12/2039
$1,699
$971
$288,861
189
1/2040
$1,693
$977
$287,884
190
2/2040
$1,688
$983
$286,901
191
3/2040
$1,682
$989
$285,913
192
4/2040
$1,676
$994
$284,918
End of year 16
193
5/2040
$1,670
$1,000
$283,918
194
6/2040
$1,664
$1,006
$282,912
195
7/2040
$1,659
$1,012
$281,900
196
8/2040
$1,653
$1,018
$280,882
197
9/2040
$1,647
$1,024
$279,858
198
10/2040
$1,641
$1,030
$278,828
199
11/2040
$1,635
$1,036
$277,792
200
12/2040
$1,629
$1,042
$276,750
201
1/2041
$1,622
$1,048
$275,702
202
2/2041
$1,616
$1,054
$274,647
203
3/2041
$1,610
$1,060
$273,587
204
4/2041
$1,604
$1,067
$272,520
End of year 17
205
5/2041
$1,598
$1,073
$271,447
206
6/2041
$1,591
$1,079
$270,368
207
7/2041
$1,585
$1,086
$269,282
208
8/2041
$1,579
$1,092
$268,190
209
9/2041
$1,572
$1,098
$267,092
210
10/2041
$1,566
$1,105
$265,987
211
11/2041
$1,559
$1,111
$264,876
212
12/2041
$1,553
$1,118
$263,758
213
1/2042
$1,546
$1,124
$262,634
214
2/2042
$1,540
$1,131
$261,503
215
3/2042
$1,533
$1,138
$260,365
216
4/2042
$1,526
$1,144
$259,221
End of year 18
217
5/2042
$1,520
$1,151
$258,070
218
6/2042
$1,513
$1,158
$256,912
219
7/2042
$1,506
$1,164
$255,748
220
8/2042
$1,499
$1,171
$254,577
221
9/2042
$1,492
$1,178
$253,398
222
10/2042
$1,486
$1,185
$252,213
223
11/2042
$1,479
$1,192
$251,021
224
12/2042
$1,472
$1,199
$249,822
225
1/2043
$1,465
$1,206
$248,616
226
2/2043
$1,458
$1,213
$247,403
227
3/2043
$1,450
$1,220
$246,183
228
4/2043
$1,443
$1,227
$244,956
End of year 19
229
5/2043
$1,436
$1,235
$243,721
230
6/2043
$1,429
$1,242
$242,479
231
7/2043
$1,422
$1,249
$241,230
232
8/2043
$1,414
$1,256
$239,974
233
9/2043
$1,407
$1,264
$238,710
234
10/2043
$1,399
$1,271
$237,439
235
11/2043
$1,392
$1,279
$236,160
236
12/2043
$1,384
$1,286
$234,874
237
1/2044
$1,377
$1,294
$233,580
238
2/2044
$1,369
$1,301
$232,279
239
3/2044
$1,362
$1,309
$230,970
240
4/2044
$1,354
$1,317
$229,654
End of year 20
241
5/2044
$1,346
$1,324
$228,329
242
6/2044
$1,339
$1,332
$226,997
243
7/2044
$1,331
$1,340
$225,658
244
8/2044
$1,323
$1,348
$224,310
245
9/2044
$1,315
$1,356
$222,954
246
10/2044
$1,307
$1,364
$221,591
247
11/2044
$1,299
$1,372
$220,219
248
12/2044
$1,291
$1,380
$218,840
249
1/2045
$1,283
$1,388
$217,452
250
2/2045
$1,275
$1,396
$216,056
251
3/2045
$1,267
$1,404
$214,652
252
4/2045
$1,258
$1,412
$213,240
End of year 21
253
5/2045
$1,250
$1,421
$211,819
254
6/2045
$1,242
$1,429
$210,391
255
7/2045
$1,233
$1,437
$208,953
256
8/2045
$1,225
$1,446
$207,508
257
9/2045
$1,217
$1,454
$206,054
258
10/2045
$1,208
$1,463
$204,591
259
11/2045
$1,199
$1,471
$203,120
260
12/2045
$1,191
$1,480
$201,640
261
1/2046
$1,182
$1,489
$200,151
262
2/2046
$1,173
$1,497
$198,654
263
3/2046
$1,165
$1,506
$197,148
264
4/2046
$1,156
$1,515
$195,633
End of year 22
265
5/2046
$1,147
$1,524
$194,110
266
6/2046
$1,138
$1,533
$192,577
267
7/2046
$1,129
$1,542
$191,035
268
8/2046
$1,120
$1,551
$189,485
269
9/2046
$1,111
$1,560
$187,925
270
10/2046
$1,102
$1,569
$186,356
271
11/2046
$1,093
$1,578
$184,778
272
12/2046
$1,083
$1,587
$183,191
273
1/2047
$1,074
$1,597
$181,594
274
2/2047
$1,065
$1,606
$179,988
275
3/2047
$1,055
$1,615
$178,372
276
4/2047
$1,046
$1,625
$176,748
End of year 23
277
5/2047
$1,036
$1,634
$175,113
278
6/2047
$1,027
$1,644
$173,469
279
7/2047
$1,017
$1,654
$171,815
280
8/2047
$1,007
$1,663
$170,152
281
9/2047
$998
$1,673
$168,479
282
10/2047
$988
$1,683
$166,796
283
11/2047
$978
$1,693
$165,103
284
12/2047
$968
$1,703
$163,401
285
1/2048
$958
$1,713
$161,688
286
2/2048
$948
$1,723
$159,965
287
3/2048
$938
$1,733
$158,232
288
4/2048
$928
$1,743
$156,489
End of year 24
289
5/2048
$917
$1,753
$154,736
290
6/2048
$907
$1,763
$152,973
291
7/2048
$897
$1,774
$151,199
292
8/2048
$886
$1,784
$149,415
293
9/2048
$876
$1,795
$147,620
294
10/2048
$865
$1,805
$145,815
295
11/2048
$855
$1,816
$143,999
296
12/2048
$844
$1,826
$142,173
297
1/2049
$833
$1,837
$140,335
298
2/2049
$823
$1,848
$138,488
299
3/2049
$812
$1,859
$136,629
300
4/2049
$801
$1,870
$134,759
End of year 25
301
5/2049
$790
$1,881
$132,879
302
6/2049
$779
$1,892
$130,987
303
7/2049
$768
$1,903
$129,084
304
8/2049
$757
$1,914
$127,170
305
9/2049
$746
$1,925
$125,245
306
10/2049
$734
$1,936
$123,309
307
11/2049
$723
$1,948
$121,361
308
12/2049
$711
$1,959
$119,402
309
1/2050
$700
$1,971
$117,431
310
2/2050
$688
$1,982
$115,449
311
3/2050
$677
$1,994
$113,455
312
4/2050
$665
$2,005
$111,450
End of year 26
313
5/2050
$653
$2,017
$109,433
314
6/2050
$642
$2,029
$107,404
315
7/2050
$630
$2,041
$105,363
316
8/2050
$618
$2,053
$103,310
317
9/2050
$606
$2,065
$101,245
318
10/2050
$594
$2,077
$99,168
319
11/2050
$581
$2,089
$97,079
320
12/2050
$569
$2,101
$94,977
321
1/2051
$557
$2,114
$92,863
322
2/2051
$544
$2,126
$90,737
323
3/2051
$532
$2,139
$88,598
324
4/2051
$519
$2,151
$86,447
End of year 27
325
5/2051
$507
$2,164
$84,283
326
6/2051
$494
$2,177
$82,107
327
7/2051
$481
$2,189
$79,917
328
8/2051
$469
$2,202
$77,715
329
9/2051
$456
$2,215
$75,500
330
10/2051
$443
$2,228
$73,272
331
11/2051
$430
$2,241
$71,031
332
12/2051
$416
$2,254
$68,777
333
1/2052
$403
$2,267
$66,510
334
2/2052
$390
$2,281
$64,229
335
3/2052
$377
$2,294
$61,935
336
4/2052
$363
$2,308
$59,627
End of year 28
337
5/2052
$350
$2,321
$57,306
338
6/2052
$336
$2,335
$54,972
339
7/2052
$322
$2,348
$52,623
340
8/2052
$309
$2,362
$50,261
341
9/2052
$295
$2,376
$47,885
342
10/2052
$281
$2,390
$45,495
343
11/2052
$267
$2,404
$43,091
344
12/2052
$253
$2,418
$40,673
345
1/2053
$238
$2,432
$38,241
346
2/2053
$224
$2,446
$35,795
347
3/2053
$210
$2,461
$33,334
348
4/2053
$195
$2,475
$30,859
End of year 29
349
5/2053
$181
$2,490
$28,369
350
6/2053
$166
$2,504
$25,865
351
7/2053
$152
$2,519
$23,346
352
8/2053
$137
$2,534
$20,812
353
9/2053
$122
$2,549
$18,264
354
10/2053
$107
$2,564
$15,700
355
11/2053
$92
$2,579
$13,121
356
12/2053
$77
$2,594
$10,528
357
1/2054
$62
$2,609
$7,919
358
2/2054
$46
$2,624
$5,295
359
3/2054
$31
$2,640
$2,655
360
4/2054
$16
$2,655
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
5/24-4/25
$28,012
$4,036
$395,964
2
5/25-4/26
$27,718
$4,329
$391,635
3
5/26-4/27
$27,404
$4,644
$386,991
4
5/27-4/28
$27,066
$4,981
$382,010
5
5/28-4/29
$26,704
$5,343
$376,667
6
5/29-4/30
$26,316
$5,731
$370,935
7
5/30-4/31
$25,900
$6,148
$364,788
8
5/31-4/32
$25,453
$6,595
$358,193
9
5/32-4/33
$24,974
$7,074
$351,119
10
5/33-4/34
$24,460
$7,588
$343,532
11
5/34-4/35
$23,908
$8,139
$335,393
12
5/35-4/36
$23,317
$8,731
$326,662
13
5/36-4/37
$22,683
$9,365
$317,297
14
5/37-4/38
$22,002
$10,045
$307,252
15
5/38-4/39
$21,272
$10,775
$296,476
16
5/39-4/40
$20,489
$11,558
$284,918
17
5/40-4/41
$19,649
$12,398
$272,520
18
5/41-4/42
$18,748
$13,299
$259,221
19
5/42-4/43
$17,782
$14,265
$244,956
20
5/43-4/44
$16,745
$15,302
$229,654
21
5/44-4/45
$15,634
$16,414
$213,240
22
5/45-4/46
$14,441
$17,607
$195,633
23
5/46-4/47
$13,162
$18,886
$176,748
24
5/47-4/48
$11,789
$20,258
$156,489
25
5/48-4/49
$10,317
$21,730
$134,759
26
5/49-4/50
$8,738
$23,309
$111,450
27
5/50-4/51
$7,045
$25,003
$86,447
28
5/51-4/52
$5,228
$26,820
$59,627
29
5/52-4/53
$3,279
$28,768
$30,859
30
5/53-4/54
$1,189
$30,859
$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.