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: $2,575.01
Monthly
Total
Mortgage Payment
$2,575.01
$927,004.43
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
$3,700.01
$1,332,004.43
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$927,004.43
Total Interest
$527,004.43
Mortgage Payoff Date
Jul. 2055
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
07/2025
$2,226
$349
$399,651
2
8/2025
$2,224
$351
$399,299
3
9/2025
$2,222
$353
$398,946
4
10/2025
$2,220
$355
$398,591
5
11/2025
$2,218
$357
$398,234
6
12/2025
$2,216
$359
$397,875
7
1/2026
$2,214
$361
$397,513
8
2/2026
$2,212
$363
$397,150
9
3/2026
$2,210
$365
$396,785
10
4/2026
$2,208
$367
$396,418
11
5/2026
$2,206
$369
$396,048
12
6/2026
$2,204
$371
$395,677
End of year 1
13
7/2026
$2,202
$373
$395,304
14
8/2026
$2,200
$375
$394,928
15
9/2026
$2,197
$378
$394,551
16
10/2026
$2,195
$380
$394,171
17
11/2026
$2,193
$382
$393,789
18
12/2026
$2,191
$384
$393,405
19
1/2027
$2,189
$386
$393,019
20
2/2027
$2,187
$388
$392,631
21
3/2027
$2,185
$390
$392,241
22
4/2027
$2,182
$393
$391,848
23
5/2027
$2,180
$395
$391,454
24
6/2027
$2,178
$397
$391,057
End of year 2
25
7/2027
$2,176
$399
$390,658
26
8/2027
$2,174
$401
$390,256
27
9/2027
$2,171
$404
$389,853
28
10/2027
$2,169
$406
$389,447
29
11/2027
$2,167
$408
$389,039
30
12/2027
$2,165
$410
$388,628
31
1/2028
$2,162
$413
$388,216
32
2/2028
$2,160
$415
$387,801
33
3/2028
$2,158
$417
$387,384
34
4/2028
$2,155
$420
$386,964
35
5/2028
$2,153
$422
$386,542
36
6/2028
$2,151
$424
$386,118
End of year 3
37
7/2028
$2,148
$427
$385,691
38
8/2028
$2,146
$429
$385,263
39
9/2028
$2,144
$431
$384,831
40
10/2028
$2,141
$434
$384,397
41
11/2028
$2,139
$436
$383,961
42
12/2028
$2,136
$439
$383,523
43
1/2029
$2,134
$441
$383,082
44
2/2029
$2,132
$443
$382,638
45
3/2029
$2,129
$446
$382,192
46
4/2029
$2,127
$448
$381,744
47
5/2029
$2,124
$451
$381,293
48
6/2029
$2,122
$453
$380,839
End of year 4
49
7/2029
$2,119
$456
$380,383
50
8/2029
$2,117
$458
$379,925
51
9/2029
$2,114
$461
$379,464
52
10/2029
$2,111
$464
$379,000
53
11/2029
$2,109
$466
$378,534
54
12/2029
$2,106
$469
$378,065
55
1/2030
$2,104
$471
$377,594
56
2/2030
$2,101
$474
$377,120
57
3/2030
$2,098
$477
$376,643
58
4/2030
$2,096
$479
$376,164
59
5/2030
$2,093
$482
$375,682
60
6/2030
$2,090
$485
$375,197
End of year 5
61
7/2030
$2,088
$487
$374,710
62
8/2030
$2,085
$490
$374,220
63
9/2030
$2,082
$493
$373,727
64
10/2030
$2,079
$496
$373,232
65
11/2030
$2,077
$498
$372,733
66
12/2030
$2,074
$501
$372,232
67
1/2031
$2,071
$504
$371,728
68
2/2031
$2,068
$507
$371,222
69
3/2031
$2,066
$509
$370,712
70
4/2031
$2,063
$512
$370,200
71
5/2031
$2,060
$515
$369,685
72
6/2031
$2,057
$518
$369,167
End of year 6
73
7/2031
$2,054
$521
$368,646
74
8/2031
$2,051
$524
$368,122
75
9/2031
$2,048
$527
$367,595
76
10/2031
$2,045
$530
$367,066
77
11/2031
$2,042
$533
$366,533
78
12/2031
$2,039
$536
$365,998
79
1/2032
$2,036
$539
$365,459
80
2/2032
$2,033
$542
$364,917
81
3/2032
$2,030
$545
$364,373
82
4/2032
$2,027
$548
$363,825
83
5/2032
$2,024
$551
$363,275
84
6/2032
$2,021
$554
$362,721
End of year 7
85
7/2032
$2,018
$557
$362,164
86
8/2032
$2,015
$560
$361,604
87
9/2032
$2,012
$563
$361,041
88
10/2032
$2,009
$566
$360,475
89
11/2032
$2,006
$569
$359,906
90
12/2032
$2,003
$572
$359,334
91
1/2033
$1,999
$576
$358,758
92
2/2033
$1,996
$579
$358,179
93
3/2033
$1,993
$582
$357,597
94
4/2033
$1,990
$585
$357,012
95
5/2033
$1,986
$589
$356,423
96
6/2033
$1,983
$592
$355,831
End of year 8
97
7/2033
$1,980
$595
$355,236
98
8/2033
$1,977
$598
$354,638
99
9/2033
$1,973
$602
$354,036
100
10/2033
$1,970
$605
$353,431
101
11/2033
$1,967
$608
$352,823
102
12/2033
$1,963
$612
$352,211
103
1/2034
$1,960
$615
$351,595
104
2/2034
$1,956
$619
$350,977
105
3/2034
$1,953
$622
$350,355
106
4/2034
$1,949
$626
$349,729
107
5/2034
$1,946
$629
$349,100
108
6/2034
$1,942
$633
$348,467
End of year 9
109
7/2034
$1,939
$636
$347,831
110
8/2034
$1,935
$640
$347,192
111
9/2034
$1,932
$643
$346,549
112
10/2034
$1,928
$647
$345,902
113
11/2034
$1,925
$650
$345,251
114
12/2034
$1,921
$654
$344,598
115
1/2035
$1,917
$658
$343,940
116
2/2035
$1,914
$661
$343,279
117
3/2035
$1,910
$665
$342,614
118
4/2035
$1,906
$669
$341,945
119
5/2035
$1,903
$672
$341,273
120
6/2035
$1,899
$676
$340,597
End of year 10
121
7/2035
$1,895
$680
$339,917
122
8/2035
$1,891
$684
$339,233
123
9/2035
$1,888
$687
$338,546
124
10/2035
$1,884
$691
$337,854
125
11/2035
$1,880
$695
$337,159
126
12/2035
$1,876
$699
$336,460
127
1/2036
$1,872
$703
$335,757
128
2/2036
$1,868
$707
$335,050
129
3/2036
$1,864
$711
$334,340
130
4/2036
$1,860
$715
$333,625
131
5/2036
$1,856
$719
$332,906
132
6/2036
$1,852
$723
$332,184
End of year 11
133
7/2036
$1,848
$727
$331,457
134
8/2036
$1,844
$731
$330,726
135
9/2036
$1,840
$735
$329,991
136
10/2036
$1,836
$739
$329,253
137
11/2036
$1,832
$743
$328,510
138
12/2036
$1,828
$747
$327,762
139
1/2037
$1,824
$751
$327,011
140
2/2037
$1,820
$755
$326,256
141
3/2037
$1,815
$760
$325,496
142
4/2037
$1,811
$764
$324,732
143
5/2037
$1,807
$768
$323,964
144
6/2037
$1,803
$772
$323,192
End of year 12
145
7/2037
$1,798
$777
$322,415
146
8/2037
$1,794
$781
$321,634
147
9/2037
$1,790
$785
$320,848
148
10/2037
$1,785
$790
$320,059
149
11/2037
$1,781
$794
$319,264
150
12/2037
$1,776
$799
$318,466
151
1/2038
$1,772
$803
$317,663
152
2/2038
$1,768
$807
$316,855
153
3/2038
$1,763
$812
$316,043
154
4/2038
$1,759
$816
$315,227
155
5/2038
$1,754
$821
$314,406
156
6/2038
$1,749
$826
$313,580
End of year 13
157
7/2038
$1,745
$830
$312,750
158
8/2038
$1,740
$835
$311,915
159
9/2038
$1,736
$839
$311,076
160
10/2038
$1,731
$844
$310,232
161
11/2038
$1,726
$849
$309,383
162
12/2038
$1,721
$854
$308,529
163
1/2039
$1,717
$858
$307,671
164
2/2039
$1,712
$863
$306,808
165
3/2039
$1,707
$868
$305,940
166
4/2039
$1,702
$873
$305,067
167
5/2039
$1,697
$878
$304,190
168
6/2039
$1,693
$882
$303,307
End of year 14
169
7/2039
$1,688
$887
$302,420
170
8/2039
$1,683
$892
$301,528
171
9/2039
$1,678
$897
$300,630
172
10/2039
$1,673
$902
$299,728
173
11/2039
$1,668
$907
$298,821
174
12/2039
$1,663
$912
$297,909
175
1/2040
$1,658
$917
$296,991
176
2/2040
$1,653
$923
$296,069
177
3/2040
$1,647
$928
$295,141
178
4/2040
$1,642
$933
$294,208
179
5/2040
$1,637
$938
$293,270
180
6/2040
$1,632
$943
$292,327
End of year 15
181
7/2040
$1,627
$948
$291,379
182
8/2040
$1,621
$954
$290,425
183
9/2040
$1,616
$959
$289,466
184
10/2040
$1,611
$964
$288,501
185
11/2040
$1,605
$970
$287,532
186
12/2040
$1,600
$975
$286,556
187
1/2041
$1,594
$981
$285,576
188
2/2041
$1,589
$986
$284,590
189
3/2041
$1,584
$992
$283,598
190
4/2041
$1,578
$997
$282,601
191
5/2041
$1,572
$1,003
$281,599
192
6/2041
$1,567
$1,008
$280,591
End of year 16
193
7/2041
$1,561
$1,014
$279,577
194
8/2041
$1,556
$1,019
$278,557
195
9/2041
$1,550
$1,025
$277,532
196
10/2041
$1,544
$1,031
$276,502
197
11/2041
$1,539
$1,037
$275,465
198
12/2041
$1,533
$1,042
$274,423
199
1/2042
$1,527
$1,048
$273,375
200
2/2042
$1,521
$1,054
$272,321
201
3/2042
$1,515
$1,060
$271,261
202
4/2042
$1,509
$1,066
$270,195
203
5/2042
$1,503
$1,072
$269,124
204
6/2042
$1,497
$1,078
$268,046
End of year 17
205
7/2042
$1,491
$1,084
$266,963
206
8/2042
$1,485
$1,090
$265,873
207
9/2042
$1,479
$1,096
$264,777
208
10/2042
$1,473
$1,102
$263,676
209
11/2042
$1,467
$1,108
$262,568
210
12/2042
$1,461
$1,114
$261,454
211
1/2043
$1,455
$1,120
$260,334
212
2/2043
$1,449
$1,126
$259,207
213
3/2043
$1,442
$1,133
$258,074
214
4/2043
$1,436
$1,139
$256,935
215
5/2043
$1,430
$1,145
$255,790
216
6/2043
$1,423
$1,152
$254,638
End of year 18
217
7/2043
$1,417
$1,158
$253,480
218
8/2043
$1,410
$1,165
$252,315
219
9/2043
$1,404
$1,171
$251,144
220
10/2043
$1,397
$1,178
$249,967
221
11/2043
$1,391
$1,184
$248,783
222
12/2043
$1,384
$1,191
$247,592
223
1/2044
$1,378
$1,197
$246,394
224
2/2044
$1,371
$1,204
$245,190
225
3/2044
$1,364
$1,211
$243,980
226
4/2044
$1,358
$1,217
$242,762
227
5/2044
$1,351
$1,224
$241,538
228
6/2044
$1,344
$1,231
$240,307
End of year 19
229
7/2044
$1,337
$1,238
$239,069
230
8/2044
$1,330
$1,245
$237,824
231
9/2044
$1,323
$1,252
$236,572
232
10/2044
$1,316
$1,259
$235,314
233
11/2044
$1,309
$1,266
$234,048
234
12/2044
$1,302
$1,273
$232,775
235
1/2045
$1,295
$1,280
$231,496
236
2/2045
$1,288
$1,287
$230,209
237
3/2045
$1,281
$1,294
$228,915
238
4/2045
$1,274
$1,301
$227,613
239
5/2045
$1,266
$1,309
$226,305
240
6/2045
$1,259
$1,316
$224,989
End of year 20
241
7/2045
$1,252
$1,323
$223,666
242
8/2045
$1,245
$1,330
$222,335
243
9/2045
$1,237
$1,338
$220,997
244
10/2045
$1,230
$1,345
$219,652
245
11/2045
$1,222
$1,353
$218,299
246
12/2045
$1,215
$1,360
$216,939
247
1/2046
$1,207
$1,368
$215,571
248
2/2046
$1,199
$1,376
$214,195
249
3/2046
$1,192
$1,383
$212,812
250
4/2046
$1,184
$1,391
$211,421
251
5/2046
$1,176
$1,399
$210,023
252
6/2046
$1,169
$1,406
$208,616
End of year 21
253
7/2046
$1,161
$1,414
$207,202
254
8/2046
$1,153
$1,422
$205,780
255
9/2046
$1,145
$1,430
$204,350
256
10/2046
$1,137
$1,438
$202,912
257
11/2046
$1,129
$1,446
$201,466
258
12/2046
$1,121
$1,454
$200,012
259
1/2047
$1,113
$1,462
$198,550
260
2/2047
$1,105
$1,470
$197,080
261
3/2047
$1,097
$1,478
$195,601
262
4/2047
$1,088
$1,487
$194,114
263
5/2047
$1,080
$1,495
$192,620
264
6/2047
$1,072
$1,503
$191,116
End of year 22
265
7/2047
$1,063
$1,512
$189,605
266
8/2047
$1,055
$1,520
$188,085
267
9/2047
$1,047
$1,528
$186,556
268
10/2047
$1,038
$1,537
$185,019
269
11/2047
$1,029
$1,546
$183,474
270
12/2047
$1,021
$1,554
$181,920
271
1/2048
$1,012
$1,563
$180,357
272
2/2048
$1,004
$1,571
$178,785
273
3/2048
$995
$1,580
$177,205
274
4/2048
$986
$1,589
$175,616
275
5/2048
$977
$1,598
$174,018
276
6/2048
$968
$1,607
$172,411
End of year 23
277
7/2048
$959
$1,616
$170,796
278
8/2048
$950
$1,625
$169,171
279
9/2048
$941
$1,634
$167,537
280
10/2048
$932
$1,643
$165,895
281
11/2048
$923
$1,652
$164,243
282
12/2048
$914
$1,661
$162,581
283
1/2049
$905
$1,670
$160,911
284
2/2049
$895
$1,680
$159,231
285
3/2049
$886
$1,689
$157,542
286
4/2049
$877
$1,698
$155,844
287
5/2049
$867
$1,708
$154,136
288
6/2049
$858
$1,717
$152,419
End of year 24
289
7/2049
$848
$1,727
$150,692
290
8/2049
$838
$1,737
$148,955
291
9/2049
$829
$1,746
$147,209
292
10/2049
$819
$1,756
$145,453
293
11/2049
$809
$1,766
$143,687
294
12/2049
$800
$1,776
$141,912
295
1/2050
$790
$1,785
$140,127
296
2/2050
$780
$1,795
$138,331
297
3/2050
$770
$1,805
$136,526
298
4/2050
$760
$1,815
$134,711
299
5/2050
$750
$1,825
$132,885
300
6/2050
$739
$1,836
$131,049
End of year 25
301
7/2050
$729
$1,846
$129,204
302
8/2050
$719
$1,856
$127,348
303
9/2050
$709
$1,866
$125,481
304
10/2050
$698
$1,877
$123,604
305
11/2050
$688
$1,887
$121,717
306
12/2050
$677
$1,898
$119,819
307
1/2051
$667
$1,908
$117,911
308
2/2051
$656
$1,919
$115,992
309
3/2051
$645
$1,930
$114,062
310
4/2051
$635
$1,940
$112,122
311
5/2051
$624
$1,951
$110,171
312
6/2051
$613
$1,962
$108,209
End of year 26
313
7/2051
$602
$1,973
$106,236
314
8/2051
$591
$1,984
$104,252
315
9/2051
$580
$1,995
$102,257
316
10/2051
$569
$2,006
$100,251
317
11/2051
$558
$2,017
$98,234
318
12/2051
$547
$2,028
$96,206
319
1/2052
$535
$2,040
$94,166
320
2/2052
$524
$2,051
$92,115
321
3/2052
$513
$2,062
$90,052
322
4/2052
$501
$2,074
$87,978
323
5/2052
$490
$2,085
$85,893
324
6/2052
$478
$2,097
$83,796
End of year 27
325
7/2052
$466
$2,109
$81,687
326
8/2052
$455
$2,120
$79,566
327
9/2052
$443
$2,132
$77,434
328
10/2052
$431
$2,144
$75,290
329
11/2052
$419
$2,156
$73,134
330
12/2052
$407
$2,168
$70,966
331
1/2053
$395
$2,180
$68,786
332
2/2053
$383
$2,192
$66,593
333
3/2053
$371
$2,204
$64,389
334
4/2053
$358
$2,217
$62,172
335
5/2053
$346
$2,229
$59,943
336
6/2053
$334
$2,241
$57,702
End of year 28
337
7/2053
$321
$2,254
$55,448
338
8/2053
$309
$2,266
$53,181
339
9/2053
$296
$2,279
$50,902
340
10/2053
$283
$2,292
$48,610
341
11/2053
$270
$2,305
$46,306
342
12/2053
$258
$2,317
$43,988
343
1/2054
$245
$2,330
$41,658
344
2/2054
$232
$2,343
$39,315
345
3/2054
$219
$2,356
$36,959
346
4/2054
$206
$2,369
$34,589
347
5/2054
$192
$2,383
$32,207
348
6/2054
$179
$2,396
$29,811
End of year 29
349
7/2054
$166
$2,409
$27,402
350
8/2054
$152
$2,423
$24,979
351
9/2054
$139
$2,436
$22,543
352
10/2054
$125
$2,450
$20,094
353
11/2054
$112
$2,463
$17,631
354
12/2054
$98
$2,477
$15,154
355
1/2055
$84
$2,491
$12,663
356
2/2055
$70
$2,505
$10,158
357
3/2055
$57
$2,518
$7,640
358
4/2055
$43
$2,533
$5,107
359
5/2055
$28
$2,547
$2,561
360
6/2055
$14
$2,561
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
7/25-6/26
$26,577
$4,323
$395,677
2
7/26-6/27
$26,280
$4,620
$391,057
3
7/27-6/28
$25,962
$4,939
$386,118
4
7/28-6/29
$25,622
$5,279
$380,839
5
7/29-6/30
$25,258
$5,642
$375,197
6
7/30-6/31
$24,870
$6,031
$369,167
7
7/31-6/32
$24,454
$6,446
$362,721
8
7/32-6/33
$24,011
$6,890
$355,831
9
7/33-6/34
$23,536
$7,364
$348,467
10
7/34-6/35
$23,029
$7,871
$340,597
11
7/35-6/36
$22,487
$8,413
$332,184
12
7/36-6/37
$21,908
$8,992
$323,192
13
7/37-6/38
$21,289
$9,611
$313,580
14
7/38-6/39
$20,627
$10,273
$303,307
15
7/39-6/40
$19,920
$10,980
$292,327
16
7/40-6/41
$19,164
$11,736
$280,591
17
7/41-6/42
$18,356
$12,544
$268,046
18
7/42-6/43
$17,492
$13,408
$254,638
19
7/43-6/44
$16,569
$14,331
$240,307
20
7/44-6/45
$15,582
$15,318
$224,989
21
7/45-6/46
$14,527
$16,373
$208,616
22
7/46-6/47
$13,400
$17,500
$191,116
23
7/47-6/48
$12,195
$18,705
$172,411
24
7/48-6/49
$10,907
$19,993
$152,419
25
7/49-6/50
$9,531
$21,369
$131,049
26
7/50-6/51
$8,060
$22,841
$108,209
27
7/51-6/52
$6,487
$24,413
$83,796
28
7/52-6/53
$4,806
$26,094
$57,702
29
7/53-6/54
$3,009
$27,891
$29,811
30
7/54-6/55
$1,089
$29,811
$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.