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: $2,580.85
Monthly
Total
Mortgage Payment
$2,580.85
$929,104.77
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
$3,705.85
$1,334,104.77
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$929,104.77
Total Interest
$529,104.77
Mortgage Payoff Date
Dec. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
12/2024
$2,233
$348
$399,652
2
1/2025
$2,231
$350
$399,302
3
2/2025
$2,229
$352
$398,951
4
3/2025
$2,227
$354
$398,597
5
4/2025
$2,225
$356
$398,241
6
5/2025
$2,223
$358
$397,884
7
6/2025
$2,221
$360
$397,524
8
7/2025
$2,219
$362
$397,162
9
8/2025
$2,217
$364
$396,799
10
9/2025
$2,215
$366
$396,433
11
10/2025
$2,213
$368
$396,065
12
11/2025
$2,211
$370
$395,695
End of year 1
13
12/2025
$2,209
$372
$395,323
14
1/2026
$2,207
$374
$394,949
15
2/2026
$2,205
$376
$394,573
16
3/2026
$2,203
$378
$394,195
17
4/2026
$2,201
$380
$393,815
18
5/2026
$2,198
$382
$393,433
19
6/2026
$2,196
$385
$393,048
20
7/2026
$2,194
$387
$392,661
21
8/2026
$2,192
$389
$392,273
22
9/2026
$2,190
$391
$391,882
23
10/2026
$2,188
$393
$391,488
24
11/2026
$2,185
$395
$391,093
End of year 2
25
12/2026
$2,183
$398
$390,696
26
1/2027
$2,181
$400
$390,296
27
2/2027
$2,179
$402
$389,894
28
3/2027
$2,177
$404
$389,489
29
4/2027
$2,174
$407
$389,083
30
5/2027
$2,172
$409
$388,674
31
6/2027
$2,170
$411
$388,263
32
7/2027
$2,167
$413
$387,850
33
8/2027
$2,165
$416
$387,434
34
9/2027
$2,163
$418
$387,016
35
10/2027
$2,161
$420
$386,596
36
11/2027
$2,158
$423
$386,173
End of year 3
37
12/2027
$2,156
$425
$385,748
38
1/2028
$2,153
$427
$385,321
39
2/2028
$2,151
$430
$384,891
40
3/2028
$2,149
$432
$384,459
41
4/2028
$2,146
$435
$384,024
42
5/2028
$2,144
$437
$383,587
43
6/2028
$2,141
$439
$383,148
44
7/2028
$2,139
$442
$382,706
45
8/2028
$2,136
$444
$382,261
46
9/2028
$2,134
$447
$381,814
47
10/2028
$2,131
$449
$381,365
48
11/2028
$2,129
$452
$380,913
End of year 4
49
12/2028
$2,126
$454
$380,459
50
1/2029
$2,124
$457
$380,002
51
2/2029
$2,121
$459
$379,542
52
3/2029
$2,119
$462
$379,080
53
4/2029
$2,116
$465
$378,616
54
5/2029
$2,114
$467
$378,148
55
6/2029
$2,111
$470
$377,679
56
7/2029
$2,108
$472
$377,206
57
8/2029
$2,106
$475
$376,731
58
9/2029
$2,103
$478
$376,253
59
10/2029
$2,100
$480
$375,773
60
11/2029
$2,098
$483
$375,290
End of year 5
61
12/2029
$2,095
$486
$374,804
62
1/2030
$2,092
$489
$374,315
63
2/2030
$2,090
$491
$373,824
64
3/2030
$2,087
$494
$373,330
65
4/2030
$2,084
$497
$372,833
66
5/2030
$2,081
$500
$372,334
67
6/2030
$2,079
$502
$371,832
68
7/2030
$2,076
$505
$371,327
69
8/2030
$2,073
$508
$370,819
70
9/2030
$2,070
$511
$370,308
71
10/2030
$2,067
$514
$369,794
72
11/2030
$2,064
$516
$369,278
End of year 6
73
12/2030
$2,061
$519
$368,758
74
1/2031
$2,059
$522
$368,236
75
2/2031
$2,056
$525
$367,711
76
3/2031
$2,053
$528
$367,183
77
4/2031
$2,050
$531
$366,652
78
5/2031
$2,047
$534
$366,118
79
6/2031
$2,044
$537
$365,581
80
7/2031
$2,041
$540
$365,041
81
8/2031
$2,038
$543
$364,498
82
9/2031
$2,035
$546
$363,952
83
10/2031
$2,032
$549
$363,403
84
11/2031
$2,029
$552
$362,851
End of year 7
85
12/2031
$2,026
$555
$362,295
86
1/2032
$2,023
$558
$361,737
87
2/2032
$2,019
$561
$361,176
88
3/2032
$2,016
$565
$360,611
89
4/2032
$2,013
$568
$360,043
90
5/2032
$2,010
$571
$359,472
91
6/2032
$2,007
$574
$358,898
92
7/2032
$2,004
$577
$358,321
93
8/2032
$2,000
$581
$357,741
94
9/2032
$1,997
$584
$357,157
95
10/2032
$1,994
$587
$356,570
96
11/2032
$1,991
$590
$355,979
End of year 8
97
12/2032
$1,987
$594
$355,386
98
1/2033
$1,984
$597
$354,789
99
2/2033
$1,981
$600
$354,189
100
3/2033
$1,977
$604
$353,585
101
4/2033
$1,974
$607
$352,978
102
5/2033
$1,971
$610
$352,368
103
6/2033
$1,967
$614
$351,754
104
7/2033
$1,964
$617
$351,137
105
8/2033
$1,960
$621
$350,516
106
9/2033
$1,957
$624
$349,892
107
10/2033
$1,953
$628
$349,265
108
11/2033
$1,950
$631
$348,634
End of year 9
109
12/2033
$1,946
$635
$347,999
110
1/2034
$1,943
$638
$347,361
111
2/2034
$1,939
$642
$346,719
112
3/2034
$1,936
$645
$346,074
113
4/2034
$1,932
$649
$345,425
114
5/2034
$1,928
$653
$344,772
115
6/2034
$1,925
$656
$344,116
116
7/2034
$1,921
$660
$343,456
117
8/2034
$1,917
$664
$342,793
118
9/2034
$1,914
$667
$342,126
119
10/2034
$1,910
$671
$341,455
120
11/2034
$1,906
$675
$340,780
End of year 10
121
12/2034
$1,902
$678
$340,102
122
1/2035
$1,899
$682
$339,419
123
2/2035
$1,895
$686
$338,733
124
3/2035
$1,891
$690
$338,044
125
4/2035
$1,887
$694
$337,350
126
5/2035
$1,883
$698
$336,652
127
6/2035
$1,879
$701
$335,951
128
7/2035
$1,875
$705
$335,245
129
8/2035
$1,872
$709
$334,536
130
9/2035
$1,868
$713
$333,823
131
10/2035
$1,864
$717
$333,105
132
11/2035
$1,860
$721
$332,384
End of year 11
133
12/2035
$1,856
$725
$331,659
134
1/2036
$1,851
$729
$330,929
135
2/2036
$1,847
$733
$330,196
136
3/2036
$1,843
$738
$329,458
137
4/2036
$1,839
$742
$328,717
138
5/2036
$1,835
$746
$327,971
139
6/2036
$1,831
$750
$327,221
140
7/2036
$1,827
$754
$326,467
141
8/2036
$1,823
$758
$325,709
142
9/2036
$1,818
$763
$324,946
143
10/2036
$1,814
$767
$324,179
144
11/2036
$1,810
$771
$323,408
End of year 12
145
12/2036
$1,805
$775
$322,633
146
1/2037
$1,801
$780
$321,853
147
2/2037
$1,797
$784
$321,069
148
3/2037
$1,792
$788
$320,280
149
4/2037
$1,788
$793
$319,487
150
5/2037
$1,784
$797
$318,690
151
6/2037
$1,779
$802
$317,888
152
7/2037
$1,775
$806
$317,082
153
8/2037
$1,770
$811
$316,271
154
9/2037
$1,766
$815
$315,456
155
10/2037
$1,761
$820
$314,636
156
11/2037
$1,756
$824
$313,812
End of year 13
157
12/2037
$1,752
$829
$312,983
158
1/2038
$1,747
$834
$312,149
159
2/2038
$1,743
$838
$311,311
160
3/2038
$1,738
$843
$310,468
161
4/2038
$1,733
$848
$309,620
162
5/2038
$1,728
$852
$308,768
163
6/2038
$1,724
$857
$307,911
164
7/2038
$1,719
$862
$307,049
165
8/2038
$1,714
$867
$306,182
166
9/2038
$1,709
$872
$305,311
167
10/2038
$1,704
$876
$304,434
168
11/2038
$1,700
$881
$303,553
End of year 14
169
12/2038
$1,695
$886
$302,667
170
1/2039
$1,690
$891
$301,775
171
2/2039
$1,685
$896
$300,879
172
3/2039
$1,680
$901
$299,978
173
4/2039
$1,675
$906
$299,072
174
5/2039
$1,670
$911
$298,161
175
6/2039
$1,664
$916
$297,244
176
7/2039
$1,659
$921
$296,323
177
8/2039
$1,654
$927
$295,396
178
9/2039
$1,649
$932
$294,464
179
10/2039
$1,644
$937
$293,527
180
11/2039
$1,639
$942
$292,585
End of year 15
181
12/2039
$1,633
$947
$291,638
182
1/2040
$1,628
$953
$290,685
183
2/2040
$1,623
$958
$289,727
184
3/2040
$1,617
$963
$288,763
185
4/2040
$1,612
$969
$287,794
186
5/2040
$1,607
$974
$286,820
187
6/2040
$1,601
$980
$285,840
188
7/2040
$1,596
$985
$284,855
189
8/2040
$1,590
$991
$283,865
190
9/2040
$1,585
$996
$282,869
191
10/2040
$1,579
$1,002
$281,867
192
11/2040
$1,574
$1,007
$280,859
End of year 16
193
12/2040
$1,568
$1,013
$279,847
194
1/2041
$1,562
$1,019
$278,828
195
2/2041
$1,557
$1,024
$277,804
196
3/2041
$1,551
$1,030
$276,774
197
4/2041
$1,545
$1,036
$275,738
198
5/2041
$1,539
$1,042
$274,696
199
6/2041
$1,533
$1,047
$273,649
200
7/2041
$1,528
$1,053
$272,596
201
8/2041
$1,522
$1,059
$271,537
202
9/2041
$1,516
$1,065
$270,472
203
10/2041
$1,510
$1,071
$269,401
204
11/2041
$1,504
$1,077
$268,324
End of year 17
205
12/2041
$1,498
$1,083
$267,241
206
1/2042
$1,492
$1,089
$266,152
207
2/2042
$1,486
$1,095
$265,057
208
3/2042
$1,480
$1,101
$263,956
209
4/2042
$1,474
$1,107
$262,848
210
5/2042
$1,467
$1,113
$261,735
211
6/2042
$1,461
$1,120
$260,615
212
7/2042
$1,455
$1,126
$259,489
213
8/2042
$1,449
$1,132
$258,357
214
9/2042
$1,442
$1,139
$257,218
215
10/2042
$1,436
$1,145
$256,073
216
11/2042
$1,430
$1,151
$254,922
End of year 18
217
12/2042
$1,423
$1,158
$253,764
218
1/2043
$1,417
$1,164
$252,600
219
2/2043
$1,410
$1,171
$251,429
220
3/2043
$1,404
$1,177
$250,252
221
4/2043
$1,397
$1,184
$249,068
222
5/2043
$1,390
$1,190
$247,878
223
6/2043
$1,384
$1,197
$246,681
224
7/2043
$1,377
$1,204
$245,477
225
8/2043
$1,370
$1,210
$244,267
226
9/2043
$1,364
$1,217
$243,050
227
10/2043
$1,357
$1,224
$241,825
228
11/2043
$1,350
$1,231
$240,595
End of year 19
229
12/2043
$1,343
$1,238
$239,357
230
1/2044
$1,336
$1,245
$238,112
231
2/2044
$1,329
$1,252
$236,861
232
3/2044
$1,322
$1,259
$235,602
233
4/2044
$1,315
$1,266
$234,337
234
5/2044
$1,308
$1,273
$233,064
235
6/2044
$1,301
$1,280
$231,784
236
7/2044
$1,294
$1,287
$230,497
237
8/2044
$1,287
$1,294
$229,203
238
9/2044
$1,280
$1,301
$227,902
239
10/2044
$1,272
$1,309
$226,593
240
11/2044
$1,265
$1,316
$225,277
End of year 20
241
12/2044
$1,258
$1,323
$223,954
242
1/2045
$1,250
$1,331
$222,623
243
2/2045
$1,243
$1,338
$221,285
244
3/2045
$1,235
$1,346
$219,940
245
4/2045
$1,228
$1,353
$218,587
246
5/2045
$1,220
$1,361
$217,226
247
6/2045
$1,213
$1,368
$215,858
248
7/2045
$1,205
$1,376
$214,482
249
8/2045
$1,197
$1,383
$213,099
250
9/2045
$1,190
$1,391
$211,708
251
10/2045
$1,182
$1,399
$210,309
252
11/2045
$1,174
$1,407
$208,902
End of year 21
253
12/2045
$1,166
$1,415
$207,487
254
1/2046
$1,158
$1,423
$206,065
255
2/2046
$1,150
$1,430
$204,634
256
3/2046
$1,142
$1,438
$203,196
257
4/2046
$1,134
$1,447
$201,749
258
5/2046
$1,126
$1,455
$200,294
259
6/2046
$1,118
$1,463
$198,832
260
7/2046
$1,110
$1,471
$197,361
261
8/2046
$1,102
$1,479
$195,882
262
9/2046
$1,094
$1,487
$194,394
263
10/2046
$1,085
$1,496
$192,899
264
11/2046
$1,077
$1,504
$191,395
End of year 22
265
12/2046
$1,068
$1,512
$189,882
266
1/2047
$1,060
$1,521
$188,362
267
2/2047
$1,052
$1,529
$186,832
268
3/2047
$1,043
$1,538
$185,294
269
4/2047
$1,034
$1,546
$183,748
270
5/2047
$1,026
$1,555
$182,193
271
6/2047
$1,017
$1,564
$180,629
272
7/2047
$1,008
$1,572
$179,057
273
8/2047
$1,000
$1,581
$177,475
274
9/2047
$991
$1,590
$175,885
275
10/2047
$982
$1,599
$174,286
276
11/2047
$973
$1,608
$172,678
End of year 23
277
12/2047
$964
$1,617
$171,062
278
1/2048
$955
$1,626
$169,436
279
2/2048
$946
$1,635
$167,801
280
3/2048
$937
$1,644
$166,157
281
4/2048
$928
$1,653
$164,503
282
5/2048
$918
$1,663
$162,841
283
6/2048
$909
$1,672
$161,169
284
7/2048
$900
$1,681
$159,488
285
8/2048
$890
$1,691
$157,797
286
9/2048
$881
$1,700
$156,098
287
10/2048
$871
$1,709
$154,388
288
11/2048
$862
$1,719
$152,669
End of year 24
289
12/2048
$852
$1,729
$150,941
290
1/2049
$843
$1,738
$149,202
291
2/2049
$833
$1,748
$147,454
292
3/2049
$823
$1,758
$145,697
293
4/2049
$813
$1,767
$143,929
294
5/2049
$803
$1,777
$142,152
295
6/2049
$794
$1,787
$140,365
296
7/2049
$784
$1,797
$138,567
297
8/2049
$774
$1,807
$136,760
298
9/2049
$763
$1,817
$134,943
299
10/2049
$753
$1,828
$133,115
300
11/2049
$743
$1,838
$131,277
End of year 25
301
12/2049
$733
$1,848
$129,429
302
1/2050
$723
$1,858
$127,571
303
2/2050
$712
$1,869
$125,702
304
3/2050
$702
$1,879
$123,823
305
4/2050
$691
$1,890
$121,934
306
5/2050
$681
$1,900
$120,034
307
6/2050
$670
$1,911
$118,123
308
7/2050
$659
$1,921
$116,201
309
8/2050
$649
$1,932
$114,269
310
9/2050
$638
$1,943
$112,326
311
10/2050
$627
$1,954
$110,372
312
11/2050
$616
$1,965
$108,408
End of year 26
313
12/2050
$605
$1,976
$106,432
314
1/2051
$594
$1,987
$104,445
315
2/2051
$583
$1,998
$102,448
316
3/2051
$572
$2,009
$100,439
317
4/2051
$561
$2,020
$98,419
318
5/2051
$549
$2,031
$96,387
319
6/2051
$538
$2,043
$94,344
320
7/2051
$527
$2,054
$92,290
321
8/2051
$515
$2,066
$90,225
322
9/2051
$504
$2,077
$88,147
323
10/2051
$492
$2,089
$86,059
324
11/2051
$480
$2,100
$83,958
End of year 27
325
12/2051
$469
$2,112
$81,846
326
1/2052
$457
$2,124
$79,722
327
2/2052
$445
$2,136
$77,586
328
3/2052
$433
$2,148
$75,439
329
4/2052
$421
$2,160
$73,279
330
5/2052
$409
$2,172
$71,107
331
6/2052
$397
$2,184
$68,923
332
7/2052
$385
$2,196
$66,727
333
8/2052
$373
$2,208
$64,519
334
9/2052
$360
$2,221
$62,298
335
10/2052
$348
$2,233
$60,065
336
11/2052
$335
$2,246
$57,820
End of year 28
337
12/2052
$323
$2,258
$55,561
338
1/2053
$310
$2,271
$53,291
339
2/2053
$297
$2,283
$51,007
340
3/2053
$285
$2,296
$48,711
341
4/2053
$272
$2,309
$46,402
342
5/2053
$259
$2,322
$44,081
343
6/2053
$246
$2,335
$41,746
344
7/2053
$233
$2,348
$39,398
345
8/2053
$220
$2,361
$37,037
346
9/2053
$207
$2,374
$34,663
347
10/2053
$194
$2,387
$32,276
348
11/2053
$180
$2,401
$29,875
End of year 29
349
12/2053
$167
$2,414
$27,461
350
1/2054
$153
$2,428
$25,033
351
2/2054
$140
$2,441
$22,592
352
3/2054
$126
$2,455
$20,138
353
4/2054
$112
$2,468
$17,669
354
5/2054
$99
$2,482
$15,187
355
6/2054
$85
$2,496
$12,691
356
7/2054
$71
$2,510
$10,181
357
8/2054
$57
$2,524
$7,657
358
9/2054
$43
$2,538
$5,119
359
10/2054
$29
$2,552
$2,567
360
11/2054
$14
$2,567
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
12/24-11/25
$26,665
$4,305
$395,695
2
12/25-11/26
$26,368
$4,602
$391,093
3
12/26-11/27
$26,050
$4,920
$386,173
4
12/27-11/28
$25,710
$5,260
$380,913
5
12/28-11/29
$25,347
$5,623
$375,290
6
12/29-11/30
$24,958
$6,012
$369,278
7
12/30-11/31
$24,543
$6,427
$362,851
8
12/31-11/32
$24,099
$6,871
$355,979
9
12/32-11/33
$23,624
$7,346
$348,634
10
12/33-11/34
$23,117
$7,853
$340,780
11
12/34-11/35
$22,574
$8,396
$332,384
12
12/35-11/36
$21,994
$8,976
$323,408
13
12/36-11/37
$21,374
$9,596
$313,812
14
12/37-11/38
$20,711
$10,259
$303,553
15
12/38-11/39
$20,002
$10,968
$292,585
16
12/39-11/40
$19,245
$11,726
$280,859
17
12/40-11/41
$18,435
$12,536
$268,324
18
12/41-11/42
$17,568
$13,402
$254,922
19
12/42-11/43
$16,643
$14,328
$240,595
20
12/43-11/44
$15,653
$15,317
$225,277
21
12/44-11/45
$14,595
$16,376
$208,902
22
12/45-11/46
$13,463
$17,507
$191,395
23
12/46-11/47
$12,254
$18,716
$172,678
24
12/47-11/48
$10,961
$20,009
$152,669
25
12/48-11/49
$9,578
$21,392
$131,277
26
12/49-11/50
$8,101
$22,870
$108,408
27
12/50-11/51
$6,521
$24,450
$83,958
28
12/51-11/52
$4,831
$26,139
$57,820
29
12/52-11/53
$3,026
$27,944
$29,875
30
12/53-11/54
$1,095
$29,875
$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.