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: $2,669.01
Monthly
Total
Mortgage Payment
$2,669.01
$960,841.82
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
$3,794.01
$1,365,841.82
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$960,841.82
Total Interest
$560,841.82
Mortgage Payoff Date
May. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
05/2024
$2,343
$326
$399,674
2
6/2024
$2,341
$328
$399,346
3
7/2024
$2,339
$330
$399,016
4
8/2024
$2,337
$332
$398,684
5
9/2024
$2,335
$334
$398,351
6
10/2024
$2,333
$336
$398,015
7
11/2024
$2,331
$338
$397,677
8
12/2024
$2,329
$340
$397,338
9
1/2025
$2,327
$342
$396,996
10
2/2025
$2,325
$344
$396,653
11
3/2025
$2,323
$346
$396,307
12
4/2025
$2,321
$348
$395,959
End of year 1
13
5/2025
$2,319
$350
$395,610
14
6/2025
$2,317
$352
$395,258
15
7/2025
$2,315
$354
$394,904
16
8/2025
$2,313
$356
$394,548
17
9/2025
$2,311
$358
$394,190
18
10/2025
$2,309
$360
$393,830
19
11/2025
$2,307
$362
$393,468
20
12/2025
$2,305
$364
$393,104
21
1/2026
$2,303
$366
$392,738
22
2/2026
$2,300
$369
$392,369
23
3/2026
$2,298
$371
$391,998
24
4/2026
$2,296
$373
$391,625
End of year 2
25
5/2026
$2,294
$375
$391,250
26
6/2026
$2,292
$377
$390,873
27
7/2026
$2,290
$379
$390,494
28
8/2026
$2,287
$382
$390,112
29
9/2026
$2,285
$384
$389,728
30
10/2026
$2,283
$386
$389,342
31
11/2026
$2,281
$388
$388,953
32
12/2026
$2,278
$391
$388,563
33
1/2027
$2,276
$393
$388,170
34
2/2027
$2,274
$395
$387,774
35
3/2027
$2,271
$398
$387,377
36
4/2027
$2,269
$400
$386,977
End of year 3
37
5/2027
$2,267
$402
$386,575
38
6/2027
$2,264
$405
$386,170
39
7/2027
$2,262
$407
$385,763
40
8/2027
$2,260
$409
$385,354
41
9/2027
$2,257
$412
$384,942
42
10/2027
$2,255
$414
$384,528
43
11/2027
$2,252
$417
$384,111
44
12/2027
$2,250
$419
$383,692
45
1/2028
$2,247
$422
$383,270
46
2/2028
$2,245
$424
$382,846
47
3/2028
$2,243
$426
$382,420
48
4/2028
$2,240
$429
$381,991
End of year 4
49
5/2028
$2,238
$431
$381,559
50
6/2028
$2,235
$434
$381,125
51
7/2028
$2,232
$437
$380,689
52
8/2028
$2,230
$439
$380,250
53
9/2028
$2,227
$442
$379,808
54
10/2028
$2,225
$444
$379,364
55
11/2028
$2,222
$447
$378,917
56
12/2028
$2,220
$449
$378,467
57
1/2029
$2,217
$452
$378,015
58
2/2029
$2,214
$455
$377,560
59
3/2029
$2,212
$457
$377,103
60
4/2029
$2,209
$460
$376,643
End of year 5
61
5/2029
$2,206
$463
$376,180
62
6/2029
$2,203
$466
$375,714
63
7/2029
$2,201
$468
$375,246
64
8/2029
$2,198
$471
$374,775
65
9/2029
$2,195
$474
$374,301
66
10/2029
$2,192
$477
$373,825
67
11/2029
$2,190
$479
$373,346
68
12/2029
$2,187
$482
$372,863
69
1/2030
$2,184
$485
$372,379
70
2/2030
$2,181
$488
$371,891
71
3/2030
$2,178
$491
$371,400
72
4/2030
$2,175
$494
$370,907
End of year 6
73
5/2030
$2,173
$496
$370,410
74
6/2030
$2,170
$499
$369,911
75
7/2030
$2,167
$502
$369,409
76
8/2030
$2,164
$505
$368,903
77
9/2030
$2,161
$508
$368,395
78
10/2030
$2,158
$511
$367,884
79
11/2030
$2,155
$514
$367,370
80
12/2030
$2,152
$517
$366,853
81
1/2031
$2,149
$520
$366,333
82
2/2031
$2,146
$523
$365,809
83
3/2031
$2,143
$526
$365,283
84
4/2031
$2,140
$529
$364,754
End of year 7
85
5/2031
$2,137
$532
$364,221
86
6/2031
$2,133
$536
$363,686
87
7/2031
$2,130
$539
$363,147
88
8/2031
$2,127
$542
$362,605
89
9/2031
$2,124
$545
$362,060
90
10/2031
$2,121
$548
$361,512
91
11/2031
$2,118
$551
$360,960
92
12/2031
$2,114
$555
$360,406
93
1/2032
$2,111
$558
$359,848
94
2/2032
$2,108
$561
$359,287
95
3/2032
$2,105
$564
$358,722
96
4/2032
$2,101
$568
$358,154
End of year 8
97
5/2032
$2,098
$571
$357,583
98
6/2032
$2,095
$574
$357,009
99
7/2032
$2,091
$578
$356,431
100
8/2032
$2,088
$581
$355,850
101
9/2032
$2,084
$585
$355,265
102
10/2032
$2,081
$588
$354,677
103
11/2032
$2,078
$591
$354,086
104
12/2032
$2,074
$595
$353,491
105
1/2033
$2,071
$598
$352,892
106
2/2033
$2,067
$602
$352,290
107
3/2033
$2,064
$605
$351,685
108
4/2033
$2,060
$609
$351,076
End of year 9
109
5/2033
$2,056
$613
$350,463
110
6/2033
$2,053
$616
$349,847
111
7/2033
$2,049
$620
$349,227
112
8/2033
$2,046
$623
$348,604
113
9/2033
$2,042
$627
$347,977
114
10/2033
$2,038
$631
$347,346
115
11/2033
$2,035
$634
$346,712
116
12/2033
$2,031
$638
$346,074
117
1/2034
$2,027
$642
$345,432
118
2/2034
$2,023
$646
$344,786
119
3/2034
$2,020
$649
$344,137
120
4/2034
$2,016
$653
$343,483
End of year 10
121
5/2034
$2,012
$657
$342,826
122
6/2034
$2,008
$661
$342,165
123
7/2034
$2,004
$665
$341,501
124
8/2034
$2,000
$669
$340,832
125
9/2034
$1,996
$673
$340,159
126
10/2034
$1,992
$677
$339,483
127
11/2034
$1,989
$680
$338,802
128
12/2034
$1,985
$684
$338,118
129
1/2035
$1,981
$688
$337,429
130
2/2035
$1,976
$693
$336,737
131
3/2035
$1,972
$697
$336,040
132
4/2035
$1,968
$701
$335,340
End of year 11
133
5/2035
$1,964
$705
$334,635
134
6/2035
$1,960
$709
$333,926
135
7/2035
$1,956
$713
$333,213
136
8/2035
$1,952
$717
$332,496
137
9/2035
$1,948
$721
$331,774
138
10/2035
$1,943
$726
$331,049
139
11/2035
$1,939
$730
$330,319
140
12/2035
$1,935
$734
$329,585
141
1/2036
$1,931
$738
$328,846
142
2/2036
$1,926
$743
$328,103
143
3/2036
$1,922
$747
$327,356
144
4/2036
$1,917
$752
$326,605
End of year 12
145
5/2036
$1,913
$756
$325,849
146
6/2036
$1,909
$760
$325,089
147
7/2036
$1,904
$765
$324,324
148
8/2036
$1,900
$769
$323,554
149
9/2036
$1,895
$774
$322,781
150
10/2036
$1,891
$778
$322,002
151
11/2036
$1,886
$783
$321,219
152
12/2036
$1,882
$787
$320,432
153
1/2037
$1,877
$792
$319,640
154
2/2037
$1,872
$797
$318,843
155
3/2037
$1,868
$801
$318,042
156
4/2037
$1,863
$806
$317,236
End of year 13
157
5/2037
$1,858
$811
$316,425
158
6/2037
$1,853
$816
$315,609
159
7/2037
$1,849
$820
$314,789
160
8/2037
$1,844
$825
$313,964
161
9/2037
$1,839
$830
$313,134
162
10/2037
$1,834
$835
$312,299
163
11/2037
$1,829
$840
$311,459
164
12/2037
$1,824
$845
$310,615
165
1/2038
$1,819
$850
$309,765
166
2/2038
$1,814
$855
$308,911
167
3/2038
$1,809
$860
$308,051
168
4/2038
$1,804
$865
$307,187
End of year 14
169
5/2038
$1,799
$870
$306,317
170
6/2038
$1,794
$875
$305,442
171
7/2038
$1,789
$880
$304,562
172
8/2038
$1,784
$885
$303,677
173
9/2038
$1,779
$890
$302,787
174
10/2038
$1,774
$895
$301,892
175
11/2038
$1,768
$901
$300,991
176
12/2038
$1,763
$906
$300,085
177
1/2039
$1,758
$911
$299,174
178
2/2039
$1,752
$917
$298,257
179
3/2039
$1,747
$922
$297,335
180
4/2039
$1,742
$927
$296,408
End of year 15
181
5/2039
$1,736
$933
$295,475
182
6/2039
$1,731
$938
$294,537
183
7/2039
$1,725
$944
$293,593
184
8/2039
$1,720
$949
$292,644
185
9/2039
$1,714
$955
$291,689
186
10/2039
$1,709
$960
$290,728
187
11/2039
$1,703
$966
$289,762
188
12/2039
$1,697
$972
$288,791
189
1/2040
$1,692
$977
$287,813
190
2/2040
$1,686
$983
$286,830
191
3/2040
$1,680
$989
$285,841
192
4/2040
$1,674
$995
$284,846
End of year 16
193
5/2040
$1,668
$1,001
$283,846
194
6/2040
$1,663
$1,006
$282,840
195
7/2040
$1,657
$1,012
$281,827
196
8/2040
$1,651
$1,018
$280,809
197
9/2040
$1,645
$1,024
$279,785
198
10/2040
$1,639
$1,030
$278,755
199
11/2040
$1,633
$1,036
$277,719
200
12/2040
$1,627
$1,042
$276,676
201
1/2041
$1,621
$1,048
$275,628
202
2/2041
$1,614
$1,055
$274,573
203
3/2041
$1,608
$1,061
$273,513
204
4/2041
$1,602
$1,067
$272,446
End of year 17
205
5/2041
$1,596
$1,073
$271,373
206
6/2041
$1,590
$1,079
$270,293
207
7/2041
$1,583
$1,086
$269,207
208
8/2041
$1,577
$1,092
$268,115
209
9/2041
$1,570
$1,099
$267,017
210
10/2041
$1,564
$1,105
$265,912
211
11/2041
$1,558
$1,111
$264,800
212
12/2041
$1,551
$1,118
$263,683
213
1/2042
$1,545
$1,124
$262,558
214
2/2042
$1,538
$1,131
$261,427
215
3/2042
$1,531
$1,138
$260,289
216
4/2042
$1,525
$1,144
$259,145
End of year 18
217
5/2042
$1,518
$1,151
$257,994
218
6/2042
$1,511
$1,158
$256,836
219
7/2042
$1,504
$1,165
$255,671
220
8/2042
$1,498
$1,171
$254,500
221
9/2042
$1,491
$1,178
$253,322
222
10/2042
$1,484
$1,185
$252,137
223
11/2042
$1,477
$1,192
$250,944
224
12/2042
$1,470
$1,199
$249,745
225
1/2043
$1,463
$1,206
$248,539
226
2/2043
$1,456
$1,213
$247,326
227
3/2043
$1,449
$1,220
$246,106
228
4/2043
$1,442
$1,227
$244,878
End of year 19
229
5/2043
$1,434
$1,235
$243,644
230
6/2043
$1,427
$1,242
$242,402
231
7/2043
$1,420
$1,249
$241,153
232
8/2043
$1,413
$1,256
$239,896
233
9/2043
$1,405
$1,264
$238,632
234
10/2043
$1,398
$1,271
$237,361
235
11/2043
$1,390
$1,279
$236,083
236
12/2043
$1,383
$1,286
$234,796
237
1/2044
$1,375
$1,294
$233,503
238
2/2044
$1,368
$1,301
$232,201
239
3/2044
$1,360
$1,309
$230,893
240
4/2044
$1,352
$1,317
$229,576
End of year 20
241
5/2044
$1,345
$1,324
$228,252
242
6/2044
$1,337
$1,332
$226,920
243
7/2044
$1,329
$1,340
$225,580
244
8/2044
$1,321
$1,348
$224,232
245
9/2044
$1,313
$1,356
$222,877
246
10/2044
$1,306
$1,364
$221,513
247
11/2044
$1,298
$1,371
$220,142
248
12/2044
$1,289
$1,380
$218,762
249
1/2045
$1,281
$1,388
$217,375
250
2/2045
$1,273
$1,396
$215,979
251
3/2045
$1,265
$1,404
$214,575
252
4/2045
$1,257
$1,412
$213,163
End of year 21
253
5/2045
$1,249
$1,420
$211,742
254
6/2045
$1,240
$1,429
$210,314
255
7/2045
$1,232
$1,437
$208,877
256
8/2045
$1,223
$1,446
$207,431
257
9/2045
$1,215
$1,454
$205,977
258
10/2045
$1,207
$1,462
$204,515
259
11/2045
$1,198
$1,471
$203,044
260
12/2045
$1,189
$1,480
$201,564
261
1/2046
$1,181
$1,488
$200,076
262
2/2046
$1,172
$1,497
$198,578
263
3/2046
$1,163
$1,506
$197,073
264
4/2046
$1,154
$1,515
$195,558
End of year 22
265
5/2046
$1,145
$1,524
$194,034
266
6/2046
$1,137
$1,532
$192,502
267
7/2046
$1,128
$1,541
$190,961
268
8/2046
$1,119
$1,550
$189,410
269
9/2046
$1,109
$1,560
$187,851
270
10/2046
$1,100
$1,569
$186,282
271
11/2046
$1,091
$1,578
$184,704
272
12/2046
$1,082
$1,587
$183,117
273
1/2047
$1,073
$1,596
$181,521
274
2/2047
$1,063
$1,606
$179,915
275
3/2047
$1,054
$1,615
$178,300
276
4/2047
$1,044
$1,625
$176,675
End of year 23
277
5/2047
$1,035
$1,634
$175,041
278
6/2047
$1,025
$1,644
$173,397
279
7/2047
$1,016
$1,653
$171,744
280
8/2047
$1,006
$1,663
$170,081
281
9/2047
$996
$1,673
$168,408
282
10/2047
$986
$1,683
$166,726
283
11/2047
$977
$1,692
$165,033
284
12/2047
$967
$1,702
$163,331
285
1/2048
$957
$1,712
$161,619
286
2/2048
$947
$1,722
$159,896
287
3/2048
$937
$1,732
$158,164
288
4/2048
$926
$1,743
$156,421
End of year 24
289
5/2048
$916
$1,753
$154,668
290
6/2048
$906
$1,763
$152,905
291
7/2048
$896
$1,773
$151,132
292
8/2048
$885
$1,784
$149,348
293
9/2048
$875
$1,794
$147,554
294
10/2048
$864
$1,805
$145,749
295
11/2048
$854
$1,815
$143,934
296
12/2048
$843
$1,826
$142,108
297
1/2049
$832
$1,837
$140,272
298
2/2049
$822
$1,847
$138,424
299
3/2049
$811
$1,858
$136,566
300
4/2049
$800
$1,869
$134,697
End of year 25
301
5/2049
$789
$1,880
$132,817
302
6/2049
$778
$1,891
$130,926
303
7/2049
$767
$1,902
$129,024
304
8/2049
$756
$1,913
$127,111
305
9/2049
$745
$1,924
$125,186
306
10/2049
$733
$1,936
$123,250
307
11/2049
$722
$1,947
$121,303
308
12/2049
$711
$1,958
$119,345
309
1/2050
$699
$1,970
$117,375
310
2/2050
$688
$1,981
$115,393
311
3/2050
$676
$1,993
$113,400
312
4/2050
$664
$2,005
$111,396
End of year 26
313
5/2050
$652
$2,017
$109,379
314
6/2050
$641
$2,028
$107,351
315
7/2050
$629
$2,040
$105,311
316
8/2050
$617
$2,052
$103,258
317
9/2050
$605
$2,064
$101,194
318
10/2050
$593
$2,076
$99,118
319
11/2050
$581
$2,088
$97,030
320
12/2050
$568
$2,101
$94,929
321
1/2051
$556
$2,113
$92,816
322
2/2051
$544
$2,125
$90,691
323
3/2051
$531
$2,138
$88,553
324
4/2051
$519
$2,150
$86,403
End of year 27
325
5/2051
$506
$2,163
$84,240
326
6/2051
$493
$2,176
$82,064
327
7/2051
$481
$2,188
$79,876
328
8/2051
$468
$2,201
$77,675
329
9/2051
$455
$2,214
$75,461
330
10/2051
$442
$2,227
$73,234
331
11/2051
$429
$2,240
$70,994
332
12/2051
$416
$2,253
$68,740
333
1/2052
$403
$2,266
$66,474
334
2/2052
$389
$2,280
$64,194
335
3/2052
$376
$2,293
$61,901
336
4/2052
$363
$2,306
$59,595
End of year 28
337
5/2052
$349
$2,320
$57,275
338
6/2052
$335
$2,334
$54,942
339
7/2052
$322
$2,347
$52,594
340
8/2052
$308
$2,361
$50,233
341
9/2052
$294
$2,375
$47,859
342
10/2052
$280
$2,389
$45,470
343
11/2052
$266
$2,403
$43,067
344
12/2052
$252
$2,417
$40,651
345
1/2053
$238
$2,431
$38,220
346
2/2053
$224
$2,445
$35,775
347
3/2053
$210
$2,459
$33,315
348
4/2053
$195
$2,474
$30,841
End of year 29
349
5/2053
$181
$2,488
$28,353
350
6/2053
$166
$2,503
$25,850
351
7/2053
$151
$2,518
$23,332
352
8/2053
$137
$2,532
$20,800
353
9/2053
$122
$2,547
$18,253
354
10/2053
$107
$2,562
$15,691
355
11/2053
$92
$2,577
$13,114
356
12/2053
$77
$2,592
$10,521
357
1/2054
$62
$2,607
$7,914
358
2/2054
$46
$2,623
$5,291
359
3/2054
$31
$2,638
$2,653
360
4/2054
$16
$2,653
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
5/24-4/25
$27,987
$4,041
$395,959
2
5/25-4/26
$27,694
$4,334
$391,625
3
5/26-4/27
$27,379
$4,649
$386,977
4
5/27-4/28
$27,042
$4,986
$381,991
5
5/28-4/29
$26,680
$5,348
$376,643
6
5/29-4/30
$26,292
$5,736
$370,907
7
5/30-4/31
$25,875
$6,153
$364,754
8
5/31-4/32
$25,429
$6,599
$358,154
9
5/32-4/33
$24,950
$7,079
$351,076
10
5/33-4/34
$24,436
$7,592
$343,483
11
5/34-4/35
$23,884
$8,144
$335,340
12
5/35-4/36
$23,293
$8,735
$326,605
13
5/36-4/37
$22,659
$9,369
$317,236
14
5/37-4/38
$21,979
$10,049
$307,187
15
5/38-4/39
$21,249
$10,779
$296,408
16
5/39-4/40
$20,467
$11,561
$284,846
17
5/40-4/41
$19,627
$12,401
$272,446
18
5/41-4/42
$18,727
$13,301
$259,145
19
5/42-4/43
$17,761
$14,267
$244,878
20
5/43-4/44
$16,726
$15,302
$229,576
21
5/44-4/45
$15,615
$16,413
$213,163
22
5/45-4/46
$14,423
$17,605
$195,558
23
5/46-4/47
$13,145
$18,883
$176,675
24
5/47-4/48
$11,774
$20,254
$156,421
25
5/48-4/49
$10,304
$21,724
$134,697
26
5/49-4/50
$8,727
$23,301
$111,396
27
5/50-4/51
$7,035
$24,993
$86,403
28
5/51-4/52
$5,221
$26,808
$59,595
29
5/52-4/53
$3,274
$28,754
$30,841
30
5/53-4/54
$1,187
$30,841
$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.