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: $2,719.49
Monthly
Total
Mortgage Payment
$2,719.49
$979,015.21
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
$3,844.49
$1,384,015.21
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$979,015.21
Total Interest
$579,015.21
Mortgage Payoff Date
May. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
05/2024
$2,405
$314
$399,686
2
6/2024
$2,403
$316
$399,370
3
7/2024
$2,402
$318
$399,052
4
8/2024
$2,400
$320
$398,732
5
9/2024
$2,398
$322
$398,410
6
10/2024
$2,396
$324
$398,087
7
11/2024
$2,394
$326
$397,761
8
12/2024
$2,392
$328
$397,433
9
1/2025
$2,390
$330
$397,104
10
2/2025
$2,388
$332
$396,772
11
3/2025
$2,386
$334
$396,439
12
4/2025
$2,384
$336
$396,103
End of year 1
13
5/2025
$2,382
$338
$395,765
14
6/2025
$2,380
$340
$395,426
15
7/2025
$2,378
$342
$395,084
16
8/2025
$2,376
$344
$394,740
17
9/2025
$2,374
$346
$394,395
18
10/2025
$2,372
$348
$394,047
19
11/2025
$2,370
$350
$393,697
20
12/2025
$2,367
$352
$393,345
21
1/2026
$2,365
$354
$392,991
22
2/2026
$2,363
$356
$392,634
23
3/2026
$2,361
$358
$392,276
24
4/2026
$2,359
$361
$391,915
End of year 2
25
5/2026
$2,357
$363
$391,552
26
6/2026
$2,355
$365
$391,187
27
7/2026
$2,352
$367
$390,820
28
8/2026
$2,350
$369
$390,451
29
9/2026
$2,348
$372
$390,079
30
10/2026
$2,346
$374
$389,706
31
11/2026
$2,343
$376
$389,330
32
12/2026
$2,341
$378
$388,951
33
1/2027
$2,339
$381
$388,571
34
2/2027
$2,337
$383
$388,188
35
3/2027
$2,334
$385
$387,803
36
4/2027
$2,332
$388
$387,415
End of year 3
37
5/2027
$2,330
$390
$387,025
38
6/2027
$2,327
$392
$386,633
39
7/2027
$2,325
$395
$386,239
40
8/2027
$2,323
$397
$385,842
41
9/2027
$2,320
$399
$385,442
42
10/2027
$2,318
$402
$385,041
43
11/2027
$2,315
$404
$384,637
44
12/2027
$2,313
$407
$384,230
45
1/2028
$2,311
$409
$383,821
46
2/2028
$2,308
$411
$383,410
47
3/2028
$2,306
$414
$382,996
48
4/2028
$2,303
$416
$382,579
End of year 4
49
5/2028
$2,301
$419
$382,160
50
6/2028
$2,298
$421
$381,739
51
7/2028
$2,296
$424
$381,315
52
8/2028
$2,293
$427
$380,888
53
9/2028
$2,290
$429
$380,459
54
10/2028
$2,288
$432
$380,028
55
11/2028
$2,285
$434
$379,593
56
12/2028
$2,283
$437
$379,157
57
1/2029
$2,280
$439
$378,717
58
2/2029
$2,277
$442
$378,275
59
3/2029
$2,275
$445
$377,830
60
4/2029
$2,272
$447
$377,383
End of year 5
61
5/2029
$2,269
$450
$376,932
62
6/2029
$2,267
$453
$376,480
63
7/2029
$2,264
$456
$376,024
64
8/2029
$2,261
$458
$375,566
65
9/2029
$2,258
$461
$375,105
66
10/2029
$2,256
$464
$374,641
67
11/2029
$2,253
$467
$374,174
68
12/2029
$2,250
$469
$373,705
69
1/2030
$2,247
$472
$373,232
70
2/2030
$2,244
$475
$372,757
71
3/2030
$2,242
$478
$372,279
72
4/2030
$2,239
$481
$371,798
End of year 6
73
5/2030
$2,236
$484
$371,315
74
6/2030
$2,233
$487
$370,828
75
7/2030
$2,230
$490
$370,339
76
8/2030
$2,227
$493
$369,846
77
9/2030
$2,224
$495
$369,351
78
10/2030
$2,221
$498
$368,852
79
11/2030
$2,218
$501
$368,351
80
12/2030
$2,215
$504
$367,846
81
1/2031
$2,212
$508
$367,339
82
2/2031
$2,209
$511
$366,828
83
3/2031
$2,206
$514
$366,314
84
4/2031
$2,203
$517
$365,798
End of year 7
85
5/2031
$2,200
$520
$365,278
86
6/2031
$2,197
$523
$364,755
87
7/2031
$2,193
$526
$364,229
88
8/2031
$2,190
$529
$363,700
89
9/2031
$2,187
$532
$363,167
90
10/2031
$2,184
$536
$362,632
91
11/2031
$2,181
$539
$362,093
92
12/2031
$2,177
$542
$361,551
93
1/2032
$2,174
$545
$361,005
94
2/2032
$2,171
$549
$360,457
95
3/2032
$2,168
$552
$359,905
96
4/2032
$2,164
$555
$359,349
End of year 8
97
5/2032
$2,161
$559
$358,791
98
6/2032
$2,158
$562
$358,229
99
7/2032
$2,154
$565
$357,663
100
8/2032
$2,151
$569
$357,095
101
9/2032
$2,147
$572
$356,523
102
10/2032
$2,144
$576
$355,947
103
11/2032
$2,140
$579
$355,368
104
12/2032
$2,137
$583
$354,785
105
1/2033
$2,133
$586
$354,199
106
2/2033
$2,130
$590
$353,610
107
3/2033
$2,126
$593
$353,017
108
4/2033
$2,123
$597
$352,420
End of year 9
109
5/2033
$2,119
$600
$351,820
110
6/2033
$2,116
$604
$351,216
111
7/2033
$2,112
$608
$350,608
112
8/2033
$2,108
$611
$349,997
113
9/2033
$2,105
$615
$349,382
114
10/2033
$2,101
$619
$348,764
115
11/2033
$2,097
$622
$348,141
116
12/2033
$2,093
$626
$347,516
117
1/2034
$2,090
$630
$346,886
118
2/2034
$2,086
$634
$346,252
119
3/2034
$2,082
$637
$345,615
120
4/2034
$2,078
$641
$344,974
End of year 10
121
5/2034
$2,074
$645
$344,329
122
6/2034
$2,071
$649
$343,680
123
7/2034
$2,067
$653
$343,027
124
8/2034
$2,063
$657
$342,370
125
9/2034
$2,059
$661
$341,709
126
10/2034
$2,055
$665
$341,045
127
11/2034
$2,051
$669
$340,376
128
12/2034
$2,047
$673
$339,703
129
1/2035
$2,043
$677
$339,027
130
2/2035
$2,039
$681
$338,346
131
3/2035
$2,035
$685
$337,661
132
4/2035
$2,030
$689
$336,972
End of year 11
133
5/2035
$2,026
$693
$336,279
134
6/2035
$2,022
$697
$335,581
135
7/2035
$2,018
$702
$334,880
136
8/2035
$2,014
$706
$334,174
137
9/2035
$2,010
$710
$333,464
138
10/2035
$2,005
$714
$332,750
139
11/2035
$2,001
$719
$332,031
140
12/2035
$1,997
$723
$331,308
141
1/2036
$1,992
$727
$330,581
142
2/2036
$1,988
$732
$329,850
143
3/2036
$1,983
$736
$329,114
144
4/2036
$1,979
$740
$328,373
End of year 12
145
5/2036
$1,975
$745
$327,628
146
6/2036
$1,970
$749
$326,879
147
7/2036
$1,966
$754
$326,125
148
8/2036
$1,961
$758
$325,367
149
9/2036
$1,957
$763
$324,604
150
10/2036
$1,952
$768
$323,836
151
11/2036
$1,947
$772
$323,064
152
12/2036
$1,943
$777
$322,287
153
1/2037
$1,938
$781
$321,506
154
2/2037
$1,933
$786
$320,720
155
3/2037
$1,929
$791
$319,929
156
4/2037
$1,924
$796
$319,133
End of year 13
157
5/2037
$1,919
$800
$318,333
158
6/2037
$1,914
$805
$317,528
159
7/2037
$1,909
$810
$316,717
160
8/2037
$1,905
$815
$315,902
161
9/2037
$1,900
$820
$315,083
162
10/2037
$1,895
$825
$314,258
163
11/2037
$1,890
$830
$313,428
164
12/2037
$1,885
$835
$312,593
165
1/2038
$1,880
$840
$311,754
166
2/2038
$1,875
$845
$310,909
167
3/2038
$1,870
$850
$310,059
168
4/2038
$1,864
$855
$309,204
End of year 14
169
5/2038
$1,859
$860
$308,344
170
6/2038
$1,854
$865
$307,478
171
7/2038
$1,849
$871
$306,608
172
8/2038
$1,844
$876
$305,732
173
9/2038
$1,838
$881
$304,851
174
10/2038
$1,833
$886
$303,965
175
11/2038
$1,828
$892
$303,073
176
12/2038
$1,822
$897
$302,176
177
1/2039
$1,817
$902
$301,274
178
2/2039
$1,812
$908
$300,366
179
3/2039
$1,806
$913
$299,453
180
4/2039
$1,801
$919
$298,534
End of year 15
181
5/2039
$1,795
$924
$297,610
182
6/2039
$1,790
$930
$296,680
183
7/2039
$1,784
$935
$295,744
184
8/2039
$1,778
$941
$294,803
185
9/2039
$1,773
$947
$293,856
186
10/2039
$1,767
$952
$292,904
187
11/2039
$1,761
$958
$291,946
188
12/2039
$1,756
$964
$290,982
189
1/2040
$1,750
$970
$290,012
190
2/2040
$1,744
$976
$289,037
191
3/2040
$1,738
$981
$288,055
192
4/2040
$1,732
$987
$287,068
End of year 16
193
5/2040
$1,726
$993
$286,075
194
6/2040
$1,720
$999
$285,075
195
7/2040
$1,714
$1,005
$284,070
196
8/2040
$1,708
$1,011
$283,059
197
9/2040
$1,702
$1,017
$282,042
198
10/2040
$1,696
$1,023
$281,018
199
11/2040
$1,690
$1,030
$279,989
200
12/2040
$1,684
$1,036
$278,953
201
1/2041
$1,677
$1,042
$277,911
202
2/2041
$1,671
$1,048
$276,862
203
3/2041
$1,665
$1,055
$275,808
204
4/2041
$1,659
$1,061
$274,747
End of year 17
205
5/2041
$1,652
$1,067
$273,679
206
6/2041
$1,646
$1,074
$272,606
207
7/2041
$1,639
$1,080
$271,525
208
8/2041
$1,633
$1,087
$270,439
209
9/2041
$1,626
$1,093
$269,345
210
10/2041
$1,620
$1,100
$268,246
211
11/2041
$1,613
$1,106
$267,139
212
12/2041
$1,606
$1,113
$266,026
213
1/2042
$1,600
$1,120
$264,906
214
2/2042
$1,593
$1,127
$263,780
215
3/2042
$1,586
$1,133
$262,647
216
4/2042
$1,579
$1,140
$261,506
End of year 18
217
5/2042
$1,573
$1,147
$260,359
218
6/2042
$1,566
$1,154
$259,206
219
7/2042
$1,559
$1,161
$258,045
220
8/2042
$1,552
$1,168
$256,877
221
9/2042
$1,545
$1,175
$255,702
222
10/2042
$1,538
$1,182
$254,520
223
11/2042
$1,531
$1,189
$253,331
224
12/2042
$1,523
$1,196
$252,135
225
1/2043
$1,516
$1,203
$250,932
226
2/2043
$1,509
$1,211
$249,721
227
3/2043
$1,502
$1,218
$248,504
228
4/2043
$1,494
$1,225
$247,278
End of year 19
229
5/2043
$1,487
$1,233
$246,046
230
6/2043
$1,480
$1,240
$244,806
231
7/2043
$1,472
$1,247
$243,559
232
8/2043
$1,465
$1,255
$242,304
233
9/2043
$1,457
$1,262
$241,041
234
10/2043
$1,449
$1,270
$239,771
235
11/2043
$1,442
$1,278
$238,494
236
12/2043
$1,434
$1,285
$237,208
237
1/2044
$1,426
$1,293
$235,915
238
2/2044
$1,419
$1,301
$234,614
239
3/2044
$1,411
$1,309
$233,306
240
4/2044
$1,403
$1,317
$231,989
End of year 20
241
5/2044
$1,395
$1,324
$230,665
242
6/2044
$1,387
$1,332
$229,332
243
7/2044
$1,379
$1,340
$227,992
244
8/2044
$1,371
$1,348
$226,643
245
9/2044
$1,363
$1,357
$225,287
246
10/2044
$1,355
$1,365
$223,922
247
11/2044
$1,347
$1,373
$222,549
248
12/2044
$1,338
$1,381
$221,168
249
1/2045
$1,330
$1,390
$219,778
250
2/2045
$1,322
$1,398
$218,380
251
3/2045
$1,313
$1,406
$216,974
252
4/2045
$1,305
$1,415
$215,559
End of year 21
253
5/2045
$1,296
$1,423
$214,136
254
6/2045
$1,288
$1,432
$212,704
255
7/2045
$1,279
$1,440
$211,264
256
8/2045
$1,270
$1,449
$209,815
257
9/2045
$1,262
$1,458
$208,357
258
10/2045
$1,253
$1,467
$206,890
259
11/2045
$1,244
$1,475
$205,415
260
12/2045
$1,235
$1,484
$203,931
261
1/2046
$1,226
$1,493
$202,437
262
2/2046
$1,217
$1,502
$200,935
263
3/2046
$1,208
$1,511
$199,424
264
4/2046
$1,199
$1,520
$197,904
End of year 22
265
5/2046
$1,190
$1,529
$196,374
266
6/2046
$1,181
$1,539
$194,836
267
7/2046
$1,172
$1,548
$193,288
268
8/2046
$1,162
$1,557
$191,731
269
9/2046
$1,153
$1,567
$190,164
270
10/2046
$1,144
$1,576
$188,588
271
11/2046
$1,134
$1,585
$187,003
272
12/2046
$1,125
$1,595
$185,408
273
1/2047
$1,115
$1,605
$183,803
274
2/2047
$1,105
$1,614
$182,189
275
3/2047
$1,096
$1,624
$180,565
276
4/2047
$1,086
$1,634
$178,931
End of year 23
277
5/2047
$1,076
$1,644
$177,288
278
6/2047
$1,066
$1,653
$175,634
279
7/2047
$1,056
$1,663
$173,971
280
8/2047
$1,046
$1,673
$172,298
281
9/2047
$1,036
$1,683
$170,614
282
10/2047
$1,026
$1,694
$168,921
283
11/2047
$1,016
$1,704
$167,217
284
12/2047
$1,006
$1,714
$165,503
285
1/2048
$995
$1,724
$163,779
286
2/2048
$985
$1,735
$162,044
287
3/2048
$974
$1,745
$160,299
288
4/2048
$964
$1,756
$158,544
End of year 24
289
5/2048
$953
$1,766
$156,778
290
6/2048
$943
$1,777
$155,001
291
7/2048
$932
$1,787
$153,213
292
8/2048
$921
$1,798
$151,415
293
9/2048
$911
$1,809
$149,606
294
10/2048
$900
$1,820
$147,786
295
11/2048
$889
$1,831
$145,956
296
12/2048
$878
$1,842
$144,114
297
1/2049
$867
$1,853
$142,261
298
2/2049
$855
$1,864
$140,397
299
3/2049
$844
$1,875
$138,522
300
4/2049
$833
$1,887
$136,635
End of year 25
301
5/2049
$822
$1,898
$134,737
302
6/2049
$810
$1,909
$132,828
303
7/2049
$799
$1,921
$130,907
304
8/2049
$787
$1,932
$128,975
305
9/2049
$776
$1,944
$127,031
306
10/2049
$764
$1,956
$125,076
307
11/2049
$752
$1,967
$123,108
308
12/2049
$740
$1,979
$121,129
309
1/2050
$728
$1,991
$119,138
310
2/2050
$716
$2,003
$117,135
311
3/2050
$704
$2,015
$115,120
312
4/2050
$692
$2,027
$113,092
End of year 26
313
5/2050
$680
$2,039
$111,053
314
6/2050
$668
$2,052
$109,001
315
7/2050
$655
$2,064
$106,937
316
8/2050
$643
$2,076
$104,861
317
9/2050
$631
$2,089
$102,772
318
10/2050
$618
$2,101
$100,670
319
11/2050
$605
$2,114
$98,556
320
12/2050
$593
$2,127
$96,429
321
1/2051
$580
$2,140
$94,290
322
2/2051
$567
$2,152
$92,137
323
3/2051
$554
$2,165
$89,972
324
4/2051
$541
$2,178
$87,793
End of year 27
325
5/2051
$528
$2,192
$85,602
326
6/2051
$515
$2,205
$83,397
327
7/2051
$501
$2,218
$81,179
328
8/2051
$488
$2,231
$78,948
329
9/2051
$475
$2,245
$76,703
330
10/2051
$461
$2,258
$74,445
331
11/2051
$448
$2,272
$72,173
332
12/2051
$434
$2,285
$69,888
333
1/2052
$420
$2,299
$67,588
334
2/2052
$406
$2,313
$65,275
335
3/2052
$393
$2,327
$62,948
336
4/2052
$379
$2,341
$60,607
End of year 28
337
5/2052
$364
$2,355
$58,252
338
6/2052
$350
$2,369
$55,883
339
7/2052
$336
$2,383
$53,500
340
8/2052
$322
$2,398
$51,102
341
9/2052
$307
$2,412
$48,690
342
10/2052
$293
$2,427
$46,263
343
11/2052
$278
$2,441
$43,822
344
12/2052
$264
$2,456
$41,366
345
1/2053
$249
$2,471
$38,895
346
2/2053
$234
$2,486
$36,409
347
3/2053
$219
$2,501
$33,909
348
4/2053
$204
$2,516
$31,393
End of year 29
349
5/2053
$189
$2,531
$28,863
350
6/2053
$174
$2,546
$26,317
351
7/2053
$158
$2,561
$23,755
352
8/2053
$143
$2,577
$21,179
353
9/2053
$127
$2,592
$18,587
354
10/2053
$112
$2,608
$15,979
355
11/2053
$96
$2,623
$13,356
356
12/2053
$80
$2,639
$10,716
357
1/2054
$64
$2,655
$8,061
358
2/2054
$48
$2,671
$5,390
359
3/2054
$32
$2,687
$2,703
360
4/2054
$16
$2,703
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
5/24-4/25
$28,737
$3,897
$396,103
2
5/25-4/26
$28,446
$4,188
$391,915
3
5/26-4/27
$28,134
$4,500
$387,415
4
5/27-4/28
$27,798
$4,836
$382,579
5
5/28-4/29
$27,437
$5,197
$377,383
6
5/29-4/30
$27,050
$5,584
$371,798
7
5/30-4/31
$26,633
$6,001
$365,798
8
5/31-4/32
$26,185
$6,448
$359,349
9
5/32-4/33
$25,704
$6,929
$352,420
10
5/33-4/34
$25,188
$7,446
$344,974
11
5/34-4/35
$24,632
$8,002
$336,972
12
5/35-4/36
$24,035
$8,599
$328,373
13
5/36-4/37
$23,394
$9,240
$319,133
14
5/37-4/38
$22,705
$9,929
$309,204
15
5/38-4/39
$21,964
$10,670
$298,534
16
5/39-4/40
$21,168
$11,466
$287,068
17
5/40-4/41
$20,313
$12,321
$274,747
18
5/41-4/42
$19,394
$13,240
$261,506
19
5/42-4/43
$18,406
$14,228
$247,278
20
5/43-4/44
$17,345
$15,289
$231,989
21
5/44-4/45
$16,204
$16,430
$215,559
22
5/45-4/46
$14,978
$17,655
$197,904
23
5/46-4/47
$13,661
$18,972
$178,931
24
5/47-4/48
$12,246
$20,388
$158,544
25
5/48-4/49
$10,725
$21,909
$136,635
26
5/49-4/50
$9,091
$23,543
$113,092
27
5/50-4/51
$7,335
$25,299
$87,793
28
5/51-4/52
$5,448
$27,186
$60,607
29
5/52-4/53
$3,420
$29,214
$31,393
30
5/53-4/54
$1,241
$31,393
$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.