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: $2,669.27
Monthly
Total
Mortgage Payment
$2,669.27
$960,938.64
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
$3,794.27
$1,365,938.64
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$960,938.64
Total Interest
$560,938.64
Mortgage Payoff Date
Dec. 2053
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
12/2023
$2,343
$326
$399,674
2
1/2024
$2,341
$328
$399,346
3
2/2024
$2,340
$330
$399,016
4
3/2024
$2,338
$332
$398,685
5
4/2024
$2,336
$334
$398,351
6
5/2024
$2,334
$336
$398,015
7
6/2024
$2,332
$338
$397,678
8
7/2024
$2,330
$340
$397,338
9
8/2024
$2,328
$342
$396,997
10
9/2024
$2,326
$344
$396,653
11
10/2024
$2,324
$346
$396,308
12
11/2024
$2,322
$348
$395,960
End of year 1
13
12/2024
$2,320
$350
$395,611
14
1/2025
$2,318
$352
$395,259
15
2/2025
$2,316
$354
$394,905
16
3/2025
$2,313
$356
$394,549
17
4/2025
$2,311
$358
$394,192
18
5/2025
$2,309
$360
$393,832
19
6/2025
$2,307
$362
$393,470
20
7/2025
$2,305
$364
$393,105
21
8/2025
$2,303
$366
$392,739
22
9/2025
$2,301
$368
$392,371
23
10/2025
$2,299
$371
$392,000
24
11/2025
$2,296
$373
$391,627
End of year 2
25
12/2025
$2,294
$375
$391,252
26
1/2026
$2,292
$377
$390,875
27
2/2026
$2,290
$379
$390,495
28
3/2026
$2,288
$382
$390,114
29
4/2026
$2,285
$384
$389,730
30
5/2026
$2,283
$386
$389,344
31
6/2026
$2,281
$388
$388,956
32
7/2026
$2,279
$391
$388,565
33
8/2026
$2,276
$393
$388,172
34
9/2026
$2,274
$395
$387,777
35
10/2026
$2,272
$398
$387,379
36
11/2026
$2,269
$400
$386,979
End of year 3
37
12/2026
$2,267
$402
$386,577
38
1/2027
$2,265
$405
$386,172
39
2/2027
$2,262
$407
$385,766
40
3/2027
$2,260
$409
$385,356
41
4/2027
$2,258
$412
$384,944
42
5/2027
$2,255
$414
$384,530
43
6/2027
$2,253
$417
$384,114
44
7/2027
$2,250
$419
$383,695
45
8/2027
$2,248
$421
$383,273
46
9/2027
$2,245
$424
$382,849
47
10/2027
$2,243
$426
$382,423
48
11/2027
$2,240
$429
$381,994
End of year 4
49
12/2027
$2,238
$431
$381,563
50
1/2028
$2,235
$434
$381,129
51
2/2028
$2,233
$436
$380,692
52
3/2028
$2,230
$439
$380,253
53
4/2028
$2,228
$442
$379,811
54
5/2028
$2,225
$444
$379,367
55
6/2028
$2,222
$447
$378,920
56
7/2028
$2,220
$449
$378,471
57
8/2028
$2,217
$452
$378,019
58
9/2028
$2,215
$455
$377,564
59
10/2028
$2,212
$457
$377,107
60
11/2028
$2,209
$460
$376,647
End of year 5
61
12/2028
$2,207
$463
$376,184
62
1/2029
$2,204
$465
$375,719
63
2/2029
$2,201
$468
$375,250
64
3/2029
$2,198
$471
$374,779
65
4/2029
$2,196
$474
$374,306
66
5/2029
$2,193
$476
$373,829
67
6/2029
$2,190
$479
$373,350
68
7/2029
$2,187
$482
$372,868
69
8/2029
$2,184
$485
$372,383
70
9/2029
$2,182
$488
$371,895
71
10/2029
$2,179
$491
$371,405
72
11/2029
$2,176
$493
$370,911
End of year 6
73
12/2029
$2,173
$496
$370,415
74
1/2030
$2,170
$499
$369,916
75
2/2030
$2,167
$502
$369,414
76
3/2030
$2,164
$505
$368,908
77
4/2030
$2,161
$508
$368,400
78
5/2030
$2,158
$511
$367,889
79
6/2030
$2,155
$514
$367,375
80
7/2030
$2,152
$517
$366,858
81
8/2030
$2,149
$520
$366,338
82
9/2030
$2,146
$523
$365,815
83
10/2030
$2,143
$526
$365,289
84
11/2030
$2,140
$529
$364,759
End of year 7
85
12/2030
$2,137
$532
$364,227
86
1/2031
$2,134
$536
$363,692
87
2/2031
$2,131
$539
$363,153
88
3/2031
$2,127
$542
$362,611
89
4/2031
$2,124
$545
$362,066
90
5/2031
$2,121
$548
$361,518
91
6/2031
$2,118
$551
$360,967
92
7/2031
$2,115
$555
$360,412
93
8/2031
$2,111
$558
$359,854
94
9/2031
$2,108
$561
$359,293
95
10/2031
$2,105
$564
$358,729
96
11/2031
$2,102
$568
$358,161
End of year 8
97
12/2031
$2,098
$571
$357,590
98
1/2032
$2,095
$574
$357,015
99
2/2032
$2,092
$578
$356,438
100
3/2032
$2,088
$581
$355,856
101
4/2032
$2,085
$585
$355,272
102
5/2032
$2,081
$588
$354,684
103
6/2032
$2,078
$591
$354,093
104
7/2032
$2,074
$595
$353,498
105
8/2032
$2,071
$598
$352,899
106
9/2032
$2,067
$602
$352,297
107
10/2032
$2,064
$605
$351,692
108
11/2032
$2,060
$609
$351,083
End of year 9
109
12/2032
$2,057
$613
$350,471
110
1/2033
$2,053
$616
$349,854
111
2/2033
$2,050
$620
$349,235
112
3/2033
$2,046
$623
$348,611
113
4/2033
$2,042
$627
$347,984
114
5/2033
$2,039
$631
$347,354
115
6/2033
$2,035
$634
$346,719
116
7/2033
$2,031
$638
$346,081
117
8/2033
$2,027
$642
$345,439
118
9/2033
$2,024
$646
$344,794
119
10/2033
$2,020
$649
$344,145
120
11/2033
$2,016
$653
$343,491
End of year 10
121
12/2033
$2,012
$657
$342,834
122
1/2034
$2,008
$661
$342,174
123
2/2034
$2,005
$665
$341,509
124
3/2034
$2,001
$669
$340,840
125
4/2034
$1,997
$673
$340,168
126
5/2034
$1,993
$676
$339,491
127
6/2034
$1,989
$680
$338,811
128
7/2034
$1,985
$684
$338,126
129
8/2034
$1,981
$688
$337,438
130
9/2034
$1,977
$692
$336,746
131
10/2034
$1,973
$697
$336,049
132
11/2034
$1,969
$701
$335,348
End of year 11
133
12/2034
$1,965
$705
$334,644
134
1/2035
$1,960
$709
$333,935
135
2/2035
$1,956
$713
$333,222
136
3/2035
$1,952
$717
$332,505
137
4/2035
$1,948
$721
$331,784
138
5/2035
$1,944
$726
$331,058
139
6/2035
$1,939
$730
$330,328
140
7/2035
$1,935
$734
$329,594
141
8/2035
$1,931
$738
$328,856
142
9/2035
$1,927
$743
$328,113
143
10/2035
$1,922
$747
$327,366
144
11/2035
$1,918
$751
$326,614
End of year 12
145
12/2035
$1,913
$756
$325,858
146
1/2036
$1,909
$760
$325,098
147
2/2036
$1,905
$765
$324,333
148
3/2036
$1,900
$769
$323,564
149
4/2036
$1,896
$774
$322,791
150
5/2036
$1,891
$778
$322,012
151
6/2036
$1,886
$783
$321,229
152
7/2036
$1,882
$787
$320,442
153
8/2036
$1,877
$792
$319,650
154
9/2036
$1,873
$797
$318,853
155
10/2036
$1,868
$801
$318,052
156
11/2036
$1,863
$806
$317,246
End of year 13
157
12/2036
$1,859
$811
$316,435
158
1/2037
$1,854
$815
$315,620
159
2/2037
$1,849
$820
$314,800
160
3/2037
$1,844
$825
$313,974
161
4/2037
$1,839
$830
$313,145
162
5/2037
$1,835
$835
$312,310
163
6/2037
$1,830
$840
$311,470
164
7/2037
$1,825
$845
$310,626
165
8/2037
$1,820
$850
$309,776
166
9/2037
$1,815
$855
$308,921
167
10/2037
$1,810
$860
$308,062
168
11/2037
$1,805
$865
$307,197
End of year 14
169
12/2037
$1,800
$870
$306,328
170
1/2038
$1,795
$875
$305,453
171
2/2038
$1,789
$880
$304,573
172
3/2038
$1,784
$885
$303,688
173
4/2038
$1,779
$890
$302,798
174
5/2038
$1,774
$895
$301,903
175
6/2038
$1,769
$901
$301,002
176
7/2038
$1,763
$906
$300,096
177
8/2038
$1,758
$911
$299,185
178
9/2038
$1,753
$917
$298,268
179
10/2038
$1,747
$922
$297,347
180
11/2038
$1,742
$927
$296,419
End of year 15
181
12/2038
$1,737
$933
$295,486
182
1/2039
$1,731
$938
$294,548
183
2/2039
$1,726
$944
$293,605
184
3/2039
$1,720
$949
$292,655
185
4/2039
$1,714
$955
$291,701
186
5/2039
$1,709
$960
$290,740
187
6/2039
$1,703
$966
$289,774
188
7/2039
$1,698
$972
$288,802
189
8/2039
$1,692
$977
$287,825
190
9/2039
$1,686
$983
$286,842
191
10/2039
$1,680
$989
$285,853
192
11/2039
$1,675
$995
$284,858
End of year 16
193
12/2039
$1,669
$1,000
$283,858
194
1/2040
$1,663
$1,006
$282,852
195
2/2040
$1,657
$1,012
$281,839
196
3/2040
$1,651
$1,018
$280,821
197
4/2040
$1,645
$1,024
$279,797
198
5/2040
$1,639
$1,030
$278,767
199
6/2040
$1,633
$1,036
$277,731
200
7/2040
$1,627
$1,042
$276,689
201
8/2040
$1,621
$1,048
$275,640
202
9/2040
$1,615
$1,054
$274,586
203
10/2040
$1,609
$1,061
$273,525
204
11/2040
$1,602
$1,067
$272,458
End of year 17
205
12/2040
$1,596
$1,073
$271,385
206
1/2041
$1,590
$1,079
$270,306
207
2/2041
$1,584
$1,086
$269,220
208
3/2041
$1,577
$1,092
$268,128
209
4/2041
$1,571
$1,098
$267,029
210
5/2041
$1,564
$1,105
$265,924
211
6/2041
$1,558
$1,111
$264,813
212
7/2041
$1,551
$1,118
$263,695
213
8/2041
$1,545
$1,124
$262,571
214
9/2041
$1,538
$1,131
$261,440
215
10/2041
$1,532
$1,138
$260,302
216
11/2041
$1,525
$1,144
$259,158
End of year 18
217
12/2041
$1,518
$1,151
$258,007
218
1/2042
$1,511
$1,158
$256,849
219
2/2042
$1,505
$1,165
$255,684
220
3/2042
$1,498
$1,171
$254,513
221
4/2042
$1,491
$1,178
$253,335
222
5/2042
$1,484
$1,185
$252,149
223
6/2042
$1,477
$1,192
$250,957
224
7/2042
$1,470
$1,199
$249,758
225
8/2042
$1,463
$1,206
$248,552
226
9/2042
$1,456
$1,213
$247,339
227
10/2042
$1,449
$1,220
$246,119
228
11/2042
$1,442
$1,227
$244,891
End of year 19
229
12/2042
$1,435
$1,235
$243,657
230
1/2043
$1,427
$1,242
$242,415
231
2/2043
$1,420
$1,249
$241,166
232
3/2043
$1,413
$1,256
$239,909
233
4/2043
$1,405
$1,264
$238,645
234
5/2043
$1,398
$1,271
$237,374
235
6/2043
$1,391
$1,279
$236,096
236
7/2043
$1,383
$1,286
$234,809
237
8/2043
$1,376
$1,294
$233,516
238
9/2043
$1,368
$1,301
$232,214
239
10/2043
$1,360
$1,309
$230,906
240
11/2043
$1,353
$1,317
$229,589
End of year 20
241
12/2043
$1,345
$1,324
$228,265
242
1/2044
$1,337
$1,332
$226,933
243
2/2044
$1,329
$1,340
$225,593
244
3/2044
$1,322
$1,348
$224,245
245
4/2044
$1,314
$1,356
$222,890
246
5/2044
$1,306
$1,364
$221,526
247
6/2044
$1,298
$1,372
$220,155
248
7/2044
$1,290
$1,380
$218,775
249
8/2044
$1,282
$1,388
$217,387
250
9/2044
$1,274
$1,396
$215,992
251
10/2044
$1,265
$1,404
$214,588
252
11/2044
$1,257
$1,412
$213,176
End of year 21
253
12/2044
$1,249
$1,420
$211,755
254
1/2045
$1,241
$1,429
$210,326
255
2/2045
$1,232
$1,437
$208,889
256
3/2045
$1,224
$1,446
$207,444
257
4/2045
$1,215
$1,454
$205,990
258
5/2045
$1,207
$1,463
$204,527
259
6/2045
$1,198
$1,471
$203,056
260
7/2045
$1,190
$1,480
$201,577
261
8/2045
$1,181
$1,488
$200,088
262
9/2045
$1,172
$1,497
$198,591
263
10/2045
$1,163
$1,506
$197,085
264
11/2045
$1,155
$1,515
$195,571
End of year 22
265
12/2045
$1,146
$1,524
$194,047
266
1/2046
$1,137
$1,532
$192,514
267
2/2046
$1,128
$1,541
$190,973
268
3/2046
$1,119
$1,550
$189,423
269
4/2046
$1,110
$1,560
$187,863
270
5/2046
$1,101
$1,569
$186,294
271
6/2046
$1,091
$1,578
$184,716
272
7/2046
$1,082
$1,587
$183,129
273
8/2046
$1,073
$1,596
$181,533
274
9/2046
$1,063
$1,606
$179,927
275
10/2046
$1,054
$1,615
$178,312
276
11/2046
$1,045
$1,625
$176,687
End of year 23
277
12/2046
$1,035
$1,634
$175,053
278
1/2047
$1,026
$1,644
$173,409
279
2/2047
$1,016
$1,653
$171,756
280
3/2047
$1,006
$1,663
$170,093
281
4/2047
$996
$1,673
$168,420
282
5/2047
$987
$1,683
$166,737
283
6/2047
$977
$1,692
$165,045
284
7/2047
$967
$1,702
$163,342
285
8/2047
$957
$1,712
$161,630
286
9/2047
$947
$1,722
$159,908
287
10/2047
$937
$1,732
$158,175
288
11/2047
$927
$1,743
$156,433
End of year 24
289
12/2047
$916
$1,753
$154,680
290
1/2048
$906
$1,763
$152,917
291
2/2048
$896
$1,773
$151,143
292
3/2048
$885
$1,784
$149,359
293
4/2048
$875
$1,794
$147,565
294
5/2048
$864
$1,805
$145,760
295
6/2048
$854
$1,815
$143,945
296
7/2048
$843
$1,826
$142,119
297
8/2048
$833
$1,837
$140,282
298
9/2048
$822
$1,847
$138,435
299
10/2048
$811
$1,858
$136,577
300
11/2048
$800
$1,869
$134,707
End of year 25
301
12/2048
$789
$1,880
$132,827
302
1/2049
$778
$1,891
$130,936
303
2/2049
$767
$1,902
$129,034
304
3/2049
$756
$1,913
$127,121
305
4/2049
$745
$1,925
$125,196
306
5/2049
$733
$1,936
$123,260
307
6/2049
$722
$1,947
$121,313
308
7/2049
$711
$1,959
$119,354
309
8/2049
$699
$1,970
$117,384
310
9/2049
$688
$1,982
$115,403
311
10/2049
$676
$1,993
$113,410
312
11/2049
$664
$2,005
$111,405
End of year 26
313
12/2049
$653
$2,017
$109,388
314
1/2050
$641
$2,028
$107,360
315
2/2050
$629
$2,040
$105,319
316
3/2050
$617
$2,052
$103,267
317
4/2050
$605
$2,064
$101,203
318
5/2050
$593
$2,076
$99,126
319
6/2050
$581
$2,089
$97,038
320
7/2050
$568
$2,101
$94,937
321
8/2050
$556
$2,113
$92,824
322
9/2050
$544
$2,125
$90,698
323
10/2050
$531
$2,138
$88,560
324
11/2050
$519
$2,150
$86,410
End of year 27
325
12/2050
$506
$2,163
$84,247
326
1/2051
$494
$2,176
$82,071
327
2/2051
$481
$2,188
$79,883
328
3/2051
$468
$2,201
$77,681
329
4/2051
$455
$2,214
$75,467
330
5/2051
$442
$2,227
$73,240
331
6/2051
$429
$2,240
$71,000
332
7/2051
$416
$2,253
$68,747
333
8/2051
$403
$2,267
$66,480
334
9/2051
$389
$2,280
$64,200
335
10/2051
$376
$2,293
$61,907
336
11/2051
$363
$2,307
$59,600
End of year 28
337
12/2051
$349
$2,320
$57,280
338
1/2052
$336
$2,334
$54,947
339
2/2052
$322
$2,347
$52,599
340
3/2052
$308
$2,361
$50,238
341
4/2052
$294
$2,375
$47,863
342
5/2052
$280
$2,389
$45,474
343
6/2052
$266
$2,403
$43,071
344
7/2052
$252
$2,417
$40,654
345
8/2052
$238
$2,431
$38,223
346
9/2052
$224
$2,445
$35,778
347
10/2052
$210
$2,460
$33,318
348
11/2052
$195
$2,474
$30,844
End of year 29
349
12/2052
$181
$2,489
$28,356
350
1/2053
$166
$2,503
$25,852
351
2/2053
$151
$2,518
$23,335
352
3/2053
$137
$2,533
$20,802
353
4/2053
$122
$2,547
$18,255
354
5/2053
$107
$2,562
$15,692
355
6/2053
$92
$2,577
$13,115
356
7/2053
$77
$2,592
$10,523
357
8/2053
$62
$2,608
$7,915
358
9/2053
$46
$2,623
$5,292
359
10/2053
$31
$2,638
$2,654
360
11/2053
$16
$2,654
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
12/23-11/24
$27,991
$4,040
$395,960
2
12/24-11/25
$27,698
$4,333
$391,627
3
12/25-11/26
$27,384
$4,648
$386,979
4
12/26-11/27
$27,046
$4,985
$381,994
5
12/27-11/28
$26,684
$5,347
$376,647
6
12/28-11/29
$26,296
$5,735
$370,911
7
12/29-11/30
$25,879
$6,152
$364,759
8
12/30-11/31
$25,433
$6,599
$358,161
9
12/31-11/32
$24,954
$7,078
$351,083
10
12/32-11/33
$24,440
$7,592
$343,491
11
12/33-11/34
$23,888
$8,143
$335,348
12
12/34-11/35
$23,297
$8,734
$326,614
13
12/35-11/36
$22,663
$9,368
$317,246
14
12/36-11/37
$21,983
$10,049
$307,197
15
12/37-11/38
$21,253
$10,778
$296,419
16
12/38-11/39
$20,470
$11,561
$284,858
17
12/39-11/40
$19,631
$12,400
$272,458
18
12/40-11/41
$18,731
$13,301
$259,158
19
12/41-11/42
$17,765
$14,266
$244,891
20
12/42-11/43
$16,729
$15,302
$229,589
21
12/43-11/44
$15,618
$16,413
$213,176
22
12/44-11/45
$14,426
$17,605
$195,571
23
12/45-11/46
$13,148
$18,883
$176,687
24
12/46-11/47
$11,777
$20,255
$156,433
25
12/47-11/48
$10,306
$21,725
$134,707
26
12/48-11/49
$8,729
$23,303
$111,405
27
12/49-11/50
$7,037
$24,995
$86,410
28
12/50-11/51
$5,222
$26,810
$59,600
29
12/51-11/52
$3,275
$28,756
$30,844
30
12/52-11/53
$1,187
$30,844
$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.