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: $2,603.44
Monthly
Total
Mortgage Payment
$2,603.44
$937,238.06
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
$3,728.44
$1,342,238.06
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$937,238.06
Total Interest
$537,238.06
Mortgage Payoff Date
Jul. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
07/2024
$2,261
$342
$399,658
2
8/2024
$2,259
$344
$399,314
3
9/2024
$2,257
$346
$398,968
4
10/2024
$2,255
$348
$398,620
5
11/2024
$2,254
$350
$398,270
6
12/2024
$2,252
$352
$397,918
7
1/2025
$2,250
$354
$397,564
8
2/2025
$2,248
$356
$397,208
9
3/2025
$2,246
$358
$396,850
10
4/2025
$2,244
$360
$396,491
11
5/2025
$2,241
$362
$396,129
12
6/2025
$2,239
$364
$395,765
End of year 1
13
7/2025
$2,237
$366
$395,399
14
8/2025
$2,235
$368
$395,030
15
9/2025
$2,233
$370
$394,660
16
10/2025
$2,231
$372
$394,288
17
11/2025
$2,229
$374
$393,914
18
12/2025
$2,227
$377
$393,537
19
1/2026
$2,225
$379
$393,158
20
2/2026
$2,223
$381
$392,778
21
3/2026
$2,221
$383
$392,395
22
4/2026
$2,218
$385
$392,010
23
5/2026
$2,216
$387
$391,622
24
6/2026
$2,214
$389
$391,233
End of year 2
25
7/2026
$2,212
$392
$390,841
26
8/2026
$2,210
$394
$390,447
27
9/2026
$2,207
$396
$390,051
28
10/2026
$2,205
$398
$389,653
29
11/2026
$2,203
$401
$389,252
30
12/2026
$2,201
$403
$388,849
31
1/2027
$2,198
$405
$388,444
32
2/2027
$2,196
$407
$388,037
33
3/2027
$2,194
$410
$387,627
34
4/2027
$2,191
$412
$387,215
35
5/2027
$2,189
$414
$386,801
36
6/2027
$2,187
$417
$386,384
End of year 3
37
7/2027
$2,184
$419
$385,965
38
8/2027
$2,182
$421
$385,543
39
9/2027
$2,180
$424
$385,120
40
10/2027
$2,177
$426
$384,693
41
11/2027
$2,175
$429
$384,265
42
12/2027
$2,172
$431
$383,834
43
1/2028
$2,170
$433
$383,400
44
2/2028
$2,167
$436
$382,964
45
3/2028
$2,165
$438
$382,526
46
4/2028
$2,163
$441
$382,085
47
5/2028
$2,160
$443
$381,641
48
6/2028
$2,158
$446
$381,196
End of year 4
49
7/2028
$2,155
$448
$380,747
50
8/2028
$2,152
$451
$380,296
51
9/2028
$2,150
$453
$379,843
52
10/2028
$2,147
$456
$379,387
53
11/2028
$2,145
$459
$378,928
54
12/2028
$2,142
$461
$378,467
55
1/2029
$2,140
$464
$378,003
56
2/2029
$2,137
$466
$377,536
57
3/2029
$2,134
$469
$377,067
58
4/2029
$2,132
$472
$376,596
59
5/2029
$2,129
$474
$376,121
60
6/2029
$2,126
$477
$375,644
End of year 5
61
7/2029
$2,124
$480
$375,164
62
8/2029
$2,121
$483
$374,682
63
9/2029
$2,118
$485
$374,197
64
10/2029
$2,115
$488
$373,709
65
11/2029
$2,113
$491
$373,218
66
12/2029
$2,110
$494
$372,724
67
1/2030
$2,107
$496
$372,228
68
2/2030
$2,104
$499
$371,729
69
3/2030
$2,102
$502
$371,227
70
4/2030
$2,099
$505
$370,722
71
5/2030
$2,096
$508
$370,215
72
6/2030
$2,093
$510
$369,704
End of year 6
73
7/2030
$2,090
$513
$369,191
74
8/2030
$2,087
$516
$368,674
75
9/2030
$2,084
$519
$368,155
76
10/2030
$2,081
$522
$367,633
77
11/2030
$2,078
$525
$367,108
78
12/2030
$2,075
$528
$366,580
79
1/2031
$2,072
$531
$366,049
80
2/2031
$2,069
$534
$365,515
81
3/2031
$2,066
$537
$364,978
82
4/2031
$2,063
$540
$364,438
83
5/2031
$2,060
$543
$363,895
84
6/2031
$2,057
$546
$363,348
End of year 7
85
7/2031
$2,054
$549
$362,799
86
8/2031
$2,051
$552
$362,247
87
9/2031
$2,048
$556
$361,691
88
10/2031
$2,045
$559
$361,132
89
11/2031
$2,042
$562
$360,571
90
12/2031
$2,038
$565
$360,006
91
1/2032
$2,035
$568
$359,437
92
2/2032
$2,032
$571
$358,866
93
3/2032
$2,029
$575
$358,291
94
4/2032
$2,026
$578
$357,713
95
5/2032
$2,022
$581
$357,132
96
6/2032
$2,019
$584
$356,548
End of year 8
97
7/2032
$2,016
$588
$355,960
98
8/2032
$2,012
$591
$355,369
99
9/2032
$2,009
$594
$354,774
100
10/2032
$2,006
$598
$354,177
101
11/2032
$2,002
$601
$353,576
102
12/2032
$1,999
$605
$352,971
103
1/2033
$1,995
$608
$352,363
104
2/2033
$1,992
$611
$351,752
105
3/2033
$1,989
$615
$351,137
106
4/2033
$1,985
$618
$350,518
107
5/2033
$1,982
$622
$349,897
108
6/2033
$1,978
$625
$349,271
End of year 9
109
7/2033
$1,975
$629
$348,642
110
8/2033
$1,971
$632
$348,010
111
9/2033
$1,967
$636
$347,374
112
10/2033
$1,964
$640
$346,734
113
11/2033
$1,960
$643
$346,091
114
12/2033
$1,957
$647
$345,444
115
1/2034
$1,953
$651
$344,794
116
2/2034
$1,949
$654
$344,139
117
3/2034
$1,946
$658
$343,481
118
4/2034
$1,942
$662
$342,820
119
5/2034
$1,938
$665
$342,154
120
6/2034
$1,934
$669
$341,485
End of year 10
121
7/2034
$1,931
$673
$340,812
122
8/2034
$1,927
$677
$340,136
123
9/2034
$1,923
$681
$339,455
124
10/2034
$1,919
$684
$338,771
125
11/2034
$1,915
$688
$338,083
126
12/2034
$1,911
$692
$337,390
127
1/2035
$1,907
$696
$336,694
128
2/2035
$1,903
$700
$335,994
129
3/2035
$1,899
$704
$335,290
130
4/2035
$1,896
$708
$334,582
131
5/2035
$1,892
$712
$333,871
132
6/2035
$1,887
$716
$333,155
End of year 11
133
7/2035
$1,883
$720
$332,435
134
8/2035
$1,879
$724
$331,711
135
9/2035
$1,875
$728
$330,982
136
10/2035
$1,871
$732
$330,250
137
11/2035
$1,867
$736
$329,514
138
12/2035
$1,863
$741
$328,773
139
1/2036
$1,859
$745
$328,028
140
2/2036
$1,854
$749
$327,279
141
3/2036
$1,850
$753
$326,526
142
4/2036
$1,846
$757
$325,769
143
5/2036
$1,842
$762
$325,007
144
6/2036
$1,837
$766
$324,241
End of year 12
145
7/2036
$1,833
$770
$323,470
146
8/2036
$1,829
$775
$322,696
147
9/2036
$1,824
$779
$321,916
148
10/2036
$1,820
$784
$321,133
149
11/2036
$1,815
$788
$320,345
150
12/2036
$1,811
$792
$319,553
151
1/2037
$1,807
$797
$318,756
152
2/2037
$1,802
$801
$317,954
153
3/2037
$1,798
$806
$317,148
154
4/2037
$1,793
$810
$316,338
155
5/2037
$1,788
$815
$315,523
156
6/2037
$1,784
$820
$314,703
End of year 13
157
7/2037
$1,779
$824
$313,879
158
8/2037
$1,774
$829
$313,050
159
9/2037
$1,770
$834
$312,216
160
10/2037
$1,765
$838
$311,378
161
11/2037
$1,760
$843
$310,535
162
12/2037
$1,756
$848
$309,687
163
1/2038
$1,751
$853
$308,834
164
2/2038
$1,746
$857
$307,977
165
3/2038
$1,741
$862
$307,114
166
4/2038
$1,736
$867
$306,247
167
5/2038
$1,731
$872
$305,375
168
6/2038
$1,726
$877
$304,498
End of year 14
169
7/2038
$1,721
$882
$303,616
170
8/2038
$1,716
$887
$302,729
171
9/2038
$1,711
$892
$301,837
172
10/2038
$1,706
$897
$300,940
173
11/2038
$1,701
$902
$300,038
174
12/2038
$1,696
$907
$299,130
175
1/2039
$1,691
$912
$298,218
176
2/2039
$1,686
$918
$297,300
177
3/2039
$1,681
$923
$296,378
178
4/2039
$1,676
$928
$295,450
179
5/2039
$1,670
$933
$294,517
180
6/2039
$1,665
$938
$293,578
End of year 15
181
7/2039
$1,660
$944
$292,635
182
8/2039
$1,654
$949
$291,685
183
9/2039
$1,649
$954
$290,731
184
10/2039
$1,644
$960
$289,771
185
11/2039
$1,638
$965
$288,806
186
12/2039
$1,633
$971
$287,835
187
1/2040
$1,627
$976
$286,859
188
2/2040
$1,622
$982
$285,877
189
3/2040
$1,616
$987
$284,890
190
4/2040
$1,611
$993
$283,897
191
5/2040
$1,605
$998
$282,899
192
6/2040
$1,599
$1,004
$281,894
End of year 16
193
7/2040
$1,594
$1,010
$280,885
194
8/2040
$1,588
$1,016
$279,869
195
9/2040
$1,582
$1,021
$278,848
196
10/2040
$1,576
$1,027
$277,821
197
11/2040
$1,571
$1,033
$276,788
198
12/2040
$1,565
$1,039
$275,749
199
1/2041
$1,559
$1,045
$274,705
200
2/2041
$1,553
$1,050
$273,654
201
3/2041
$1,547
$1,056
$272,598
202
4/2041
$1,541
$1,062
$271,536
203
5/2041
$1,535
$1,068
$270,467
204
6/2041
$1,529
$1,074
$269,393
End of year 17
205
7/2041
$1,523
$1,080
$268,313
206
8/2041
$1,517
$1,087
$267,226
207
9/2041
$1,511
$1,093
$266,133
208
10/2041
$1,505
$1,099
$265,034
209
11/2041
$1,498
$1,105
$263,929
210
12/2041
$1,492
$1,111
$262,818
211
1/2042
$1,486
$1,118
$261,700
212
2/2042
$1,479
$1,124
$260,576
213
3/2042
$1,473
$1,130
$259,446
214
4/2042
$1,467
$1,137
$258,309
215
5/2042
$1,460
$1,143
$257,166
216
6/2042
$1,454
$1,150
$256,016
End of year 18
217
7/2042
$1,447
$1,156
$254,860
218
8/2042
$1,441
$1,163
$253,698
219
9/2042
$1,434
$1,169
$252,529
220
10/2042
$1,428
$1,176
$251,353
221
11/2042
$1,421
$1,182
$250,170
222
12/2042
$1,414
$1,189
$248,981
223
1/2043
$1,408
$1,196
$247,785
224
2/2043
$1,401
$1,203
$246,583
225
3/2043
$1,394
$1,209
$245,373
226
4/2043
$1,387
$1,216
$244,157
227
5/2043
$1,380
$1,223
$242,934
228
6/2043
$1,373
$1,230
$241,704
End of year 19
229
7/2043
$1,366
$1,237
$240,467
230
8/2043
$1,359
$1,244
$239,223
231
9/2043
$1,352
$1,251
$237,972
232
10/2043
$1,345
$1,258
$236,714
233
11/2043
$1,338
$1,265
$235,448
234
12/2043
$1,331
$1,272
$234,176
235
1/2044
$1,324
$1,280
$232,896
236
2/2044
$1,317
$1,287
$231,610
237
3/2044
$1,309
$1,294
$230,316
238
4/2044
$1,302
$1,301
$229,014
239
5/2044
$1,295
$1,309
$227,705
240
6/2044
$1,287
$1,316
$226,389
End of year 20
241
7/2044
$1,280
$1,324
$225,066
242
8/2044
$1,272
$1,331
$223,735
243
9/2044
$1,265
$1,339
$222,396
244
10/2044
$1,257
$1,346
$221,050
245
11/2044
$1,250
$1,354
$219,696
246
12/2044
$1,242
$1,361
$218,335
247
1/2045
$1,234
$1,369
$216,966
248
2/2045
$1,227
$1,377
$215,589
249
3/2045
$1,219
$1,385
$214,204
250
4/2045
$1,211
$1,392
$212,812
251
5/2045
$1,203
$1,400
$211,411
252
6/2045
$1,195
$1,408
$210,003
End of year 21
253
7/2045
$1,187
$1,416
$208,587
254
8/2045
$1,179
$1,424
$207,163
255
9/2045
$1,171
$1,432
$205,730
256
10/2045
$1,163
$1,440
$204,290
257
11/2045
$1,155
$1,449
$202,841
258
12/2045
$1,147
$1,457
$201,385
259
1/2046
$1,138
$1,465
$199,920
260
2/2046
$1,130
$1,473
$198,447
261
3/2046
$1,122
$1,482
$196,965
262
4/2046
$1,114
$1,490
$195,475
263
5/2046
$1,105
$1,498
$193,977
264
6/2046
$1,097
$1,507
$192,470
End of year 22
265
7/2046
$1,088
$1,515
$190,955
266
8/2046
$1,080
$1,524
$189,431
267
9/2046
$1,071
$1,533
$187,898
268
10/2046
$1,062
$1,541
$186,357
269
11/2046
$1,054
$1,550
$184,807
270
12/2046
$1,045
$1,559
$183,248
271
1/2047
$1,036
$1,567
$181,681
272
2/2047
$1,027
$1,576
$180,105
273
3/2047
$1,018
$1,585
$178,519
274
4/2047
$1,009
$1,594
$176,925
275
5/2047
$1,000
$1,603
$175,322
276
6/2047
$991
$1,612
$173,710
End of year 23
277
7/2047
$982
$1,621
$172,088
278
8/2047
$973
$1,631
$170,458
279
9/2047
$964
$1,640
$168,818
280
10/2047
$954
$1,649
$167,169
281
11/2047
$945
$1,658
$165,510
282
12/2047
$936
$1,668
$163,843
283
1/2048
$926
$1,677
$162,165
284
2/2048
$917
$1,687
$160,479
285
3/2048
$907
$1,696
$158,783
286
4/2048
$898
$1,706
$157,077
287
5/2048
$888
$1,715
$155,361
288
6/2048
$878
$1,725
$153,636
End of year 24
289
7/2048
$869
$1,735
$151,901
290
8/2048
$859
$1,745
$150,157
291
9/2048
$849
$1,755
$148,402
292
10/2048
$839
$1,764
$146,638
293
11/2048
$829
$1,774
$144,863
294
12/2048
$819
$1,784
$143,079
295
1/2049
$809
$1,795
$141,284
296
2/2049
$799
$1,805
$139,479
297
3/2049
$789
$1,815
$137,665
298
4/2049
$778
$1,825
$135,839
299
5/2049
$768
$1,835
$134,004
300
6/2049
$758
$1,846
$132,158
End of year 25
301
7/2049
$747
$1,856
$130,302
302
8/2049
$737
$1,867
$128,435
303
9/2049
$726
$1,877
$126,558
304
10/2049
$715
$1,888
$124,670
305
11/2049
$705
$1,899
$122,771
306
12/2049
$694
$1,909
$120,862
307
1/2050
$683
$1,920
$118,941
308
2/2050
$672
$1,931
$117,010
309
3/2050
$661
$1,942
$115,068
310
4/2050
$651
$1,953
$113,115
311
5/2050
$639
$1,964
$111,152
312
6/2050
$628
$1,975
$109,176
End of year 26
313
7/2050
$617
$1,986
$107,190
314
8/2050
$606
$1,997
$105,193
315
9/2050
$595
$2,009
$103,184
316
10/2050
$583
$2,020
$101,164
317
11/2050
$572
$2,032
$99,132
318
12/2050
$560
$2,043
$97,089
319
1/2051
$549
$2,055
$95,035
320
2/2051
$537
$2,066
$92,969
321
3/2051
$526
$2,078
$90,891
322
4/2051
$514
$2,090
$88,801
323
5/2051
$502
$2,101
$86,700
324
6/2051
$490
$2,113
$84,586
End of year 27
325
7/2051
$478
$2,125
$82,461
326
8/2051
$466
$2,137
$80,324
327
9/2051
$454
$2,149
$78,175
328
10/2051
$442
$2,161
$76,013
329
11/2051
$430
$2,174
$73,839
330
12/2051
$417
$2,186
$71,653
331
1/2052
$405
$2,198
$69,455
332
2/2052
$393
$2,211
$67,244
333
3/2052
$380
$2,223
$65,021
334
4/2052
$368
$2,236
$62,785
335
5/2052
$355
$2,248
$60,537
336
6/2052
$342
$2,261
$58,275
End of year 28
337
7/2052
$329
$2,274
$56,001
338
8/2052
$317
$2,287
$53,715
339
9/2052
$304
$2,300
$51,415
340
10/2052
$291
$2,313
$49,102
341
11/2052
$278
$2,326
$46,776
342
12/2052
$264
$2,339
$44,437
343
1/2053
$251
$2,352
$42,085
344
2/2053
$238
$2,366
$39,719
345
3/2053
$225
$2,379
$37,341
346
4/2053
$211
$2,392
$34,948
347
5/2053
$198
$2,406
$32,542
348
6/2053
$184
$2,419
$30,123
End of year 29
349
7/2053
$170
$2,433
$27,690
350
8/2053
$157
$2,447
$25,243
351
9/2053
$143
$2,461
$22,782
352
10/2053
$129
$2,475
$20,307
353
11/2053
$115
$2,489
$17,819
354
12/2053
$101
$2,503
$15,316
355
1/2054
$87
$2,517
$12,799
356
2/2054
$72
$2,531
$10,268
357
3/2054
$58
$2,545
$7,723
358
4/2054
$44
$2,560
$5,163
359
5/2054
$29
$2,574
$2,589
360
6/2054
$15
$2,589
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
7/24-6/25
$27,006
$4,235
$395,765
2
7/25-6/26
$26,709
$4,532
$391,233
3
7/26-6/27
$26,392
$4,849
$386,384
4
7/27-6/28
$26,053
$5,188
$381,196
5
7/28-6/29
$25,690
$5,551
$375,644
6
7/29-6/30
$25,301
$5,940
$369,704
7
7/30-6/31
$24,886
$6,356
$363,348
8
7/31-6/32
$24,441
$6,801
$356,548
9
7/32-6/33
$23,965
$7,277
$349,271
10
7/33-6/34
$23,455
$7,786
$341,485
11
7/34-6/35
$22,910
$8,331
$333,155
12
7/35-6/36
$22,327
$8,914
$324,241
13
7/36-6/37
$21,704
$9,538
$314,703
14
7/37-6/38
$21,036
$10,205
$304,498
15
7/38-6/39
$20,322
$10,920
$293,578
16
7/39-6/40
$19,557
$11,684
$281,894
17
7/40-6/41
$18,740
$12,502
$269,393
18
7/41-6/42
$17,865
$13,376
$256,016
19
7/42-6/43
$16,929
$14,313
$241,704
20
7/43-6/44
$15,927
$15,314
$226,389
21
7/44-6/45
$14,855
$16,386
$210,003
22
7/45-6/46
$13,708
$17,533
$192,470
23
7/46-6/47
$12,481
$18,760
$173,710
24
7/47-6/48
$11,168
$20,073
$153,636
25
7/48-6/49
$9,763
$21,478
$132,158
26
7/49-6/50
$8,260
$22,982
$109,176
27
7/50-6/51
$6,651
$24,590
$84,586
28
7/51-6/52
$4,930
$26,311
$58,275
29
7/52-6/53
$3,089
$28,153
$30,123
30
7/53-6/54
$1,118
$30,123
$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.