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: $2,682.20
Monthly
Total
Mortgage Payment
$2,682.20
$965,590.80
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
$3,807.20
$1,370,590.80
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$965,590.80
Total Interest
$565,590.80
Mortgage Payoff Date
May. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
05/2024
$2,359
$323
$399,677
2
6/2024
$2,357
$325
$399,352
3
7/2024
$2,356
$327
$399,026
4
8/2024
$2,354
$329
$398,697
5
9/2024
$2,352
$331
$398,367
6
10/2024
$2,350
$332
$398,034
7
11/2024
$2,348
$334
$397,700
8
12/2024
$2,346
$336
$397,363
9
1/2025
$2,344
$338
$397,025
10
2/2025
$2,342
$340
$396,684
11
3/2025
$2,340
$342
$396,342
12
4/2025
$2,338
$344
$395,997
End of year 1
13
5/2025
$2,336
$346
$395,651
14
6/2025
$2,334
$349
$395,302
15
7/2025
$2,332
$351
$394,952
16
8/2025
$2,330
$353
$394,599
17
9/2025
$2,327
$355
$394,245
18
10/2025
$2,325
$357
$393,888
19
11/2025
$2,323
$359
$393,529
20
12/2025
$2,321
$361
$393,168
21
1/2026
$2,319
$363
$392,805
22
2/2026
$2,317
$365
$392,439
23
3/2026
$2,315
$367
$392,072
24
4/2026
$2,313
$370
$391,702
End of year 2
25
5/2026
$2,310
$372
$391,330
26
6/2026
$2,308
$374
$390,956
27
7/2026
$2,306
$376
$390,580
28
8/2026
$2,304
$378
$390,202
29
9/2026
$2,302
$381
$389,821
30
10/2026
$2,299
$383
$389,438
31
11/2026
$2,297
$385
$389,053
32
12/2026
$2,295
$387
$388,666
33
1/2027
$2,292
$390
$388,276
34
2/2027
$2,290
$392
$387,884
35
3/2027
$2,288
$394
$387,490
36
4/2027
$2,286
$397
$387,093
End of year 3
37
5/2027
$2,283
$399
$386,694
38
6/2027
$2,281
$401
$386,293
39
7/2027
$2,278
$404
$385,889
40
8/2027
$2,276
$406
$385,483
41
9/2027
$2,274
$408
$385,074
42
10/2027
$2,271
$411
$384,663
43
11/2027
$2,269
$413
$384,250
44
12/2027
$2,266
$416
$383,834
45
1/2028
$2,264
$418
$383,416
46
2/2028
$2,262
$421
$382,995
47
3/2028
$2,259
$423
$382,572
48
4/2028
$2,257
$426
$382,147
End of year 4
49
5/2028
$2,254
$428
$381,718
50
6/2028
$2,252
$431
$381,288
51
7/2028
$2,249
$433
$380,854
52
8/2028
$2,246
$436
$380,419
53
9/2028
$2,244
$438
$379,980
54
10/2028
$2,241
$441
$379,539
55
11/2028
$2,239
$444
$379,096
56
12/2028
$2,236
$446
$378,650
57
1/2029
$2,233
$449
$378,201
58
2/2029
$2,231
$451
$377,749
59
3/2029
$2,228
$454
$377,295
60
4/2029
$2,225
$457
$376,839
End of year 5
61
5/2029
$2,223
$459
$376,379
62
6/2029
$2,220
$462
$375,917
63
7/2029
$2,217
$465
$375,452
64
8/2029
$2,215
$468
$374,984
65
9/2029
$2,212
$470
$374,514
66
10/2029
$2,209
$473
$374,041
67
11/2029
$2,206
$476
$373,565
68
12/2029
$2,203
$479
$373,086
69
1/2030
$2,201
$482
$372,604
70
2/2030
$2,198
$484
$372,120
71
3/2030
$2,195
$487
$371,633
72
4/2030
$2,192
$490
$371,142
End of year 6
73
5/2030
$2,189
$493
$370,649
74
6/2030
$2,186
$496
$370,153
75
7/2030
$2,183
$499
$369,654
76
8/2030
$2,180
$502
$369,153
77
9/2030
$2,177
$505
$368,648
78
10/2030
$2,174
$508
$368,140
79
11/2030
$2,171
$511
$367,629
80
12/2030
$2,168
$514
$367,115
81
1/2031
$2,165
$517
$366,599
82
2/2031
$2,162
$520
$366,079
83
3/2031
$2,159
$523
$365,556
84
4/2031
$2,156
$526
$365,030
End of year 7
85
5/2031
$2,153
$529
$364,501
86
6/2031
$2,150
$532
$363,968
87
7/2031
$2,147
$535
$363,433
88
8/2031
$2,144
$539
$362,894
89
9/2031
$2,140
$542
$362,353
90
10/2031
$2,137
$545
$361,808
91
11/2031
$2,134
$548
$361,260
92
12/2031
$2,131
$551
$360,708
93
1/2032
$2,128
$555
$360,154
94
2/2032
$2,124
$558
$359,596
95
3/2032
$2,121
$561
$359,035
96
4/2032
$2,118
$564
$358,470
End of year 8
97
5/2032
$2,114
$568
$357,902
98
6/2032
$2,111
$571
$357,331
99
7/2032
$2,108
$575
$356,757
100
8/2032
$2,104
$578
$356,179
101
9/2032
$2,101
$581
$355,597
102
10/2032
$2,097
$585
$355,013
103
11/2032
$2,094
$588
$354,424
104
12/2032
$2,091
$592
$353,833
105
1/2033
$2,087
$595
$353,237
106
2/2033
$2,084
$599
$352,639
107
3/2033
$2,080
$602
$352,037
108
4/2033
$2,076
$606
$351,431
End of year 9
109
5/2033
$2,073
$609
$350,821
110
6/2033
$2,069
$613
$350,208
111
7/2033
$2,066
$617
$349,592
112
8/2033
$2,062
$620
$348,972
113
9/2033
$2,058
$624
$348,348
114
10/2033
$2,055
$628
$347,720
115
11/2033
$2,051
$631
$347,089
116
12/2033
$2,047
$635
$346,454
117
1/2034
$2,044
$639
$345,816
118
2/2034
$2,040
$642
$345,173
119
3/2034
$2,036
$646
$344,527
120
4/2034
$2,032
$650
$343,877
End of year 10
121
5/2034
$2,028
$654
$343,223
122
6/2034
$2,024
$658
$342,565
123
7/2034
$2,021
$662
$341,903
124
8/2034
$2,017
$666
$341,238
125
9/2034
$2,013
$669
$340,568
126
10/2034
$2,009
$673
$339,895
127
11/2034
$2,005
$677
$339,218
128
12/2034
$2,001
$681
$338,536
129
1/2035
$1,997
$685
$337,851
130
2/2035
$1,993
$689
$337,161
131
3/2035
$1,989
$694
$336,468
132
4/2035
$1,985
$698
$335,770
End of year 11
133
5/2035
$1,980
$702
$335,069
134
6/2035
$1,976
$706
$334,363
135
7/2035
$1,972
$710
$333,653
136
8/2035
$1,968
$714
$332,939
137
9/2035
$1,964
$718
$332,220
138
10/2035
$1,960
$723
$331,498
139
11/2035
$1,955
$727
$330,771
140
12/2035
$1,951
$731
$330,039
141
1/2036
$1,947
$736
$329,304
142
2/2036
$1,942
$740
$328,564
143
3/2036
$1,938
$744
$327,820
144
4/2036
$1,934
$749
$327,071
End of year 12
145
5/2036
$1,929
$753
$326,318
146
6/2036
$1,925
$757
$325,561
147
7/2036
$1,920
$762
$324,799
148
8/2036
$1,916
$766
$324,032
149
9/2036
$1,911
$771
$323,261
150
10/2036
$1,907
$775
$322,486
151
11/2036
$1,902
$780
$321,706
152
12/2036
$1,898
$785
$320,921
153
1/2037
$1,893
$789
$320,132
154
2/2037
$1,888
$794
$319,338
155
3/2037
$1,884
$799
$318,539
156
4/2037
$1,879
$803
$317,736
End of year 13
157
5/2037
$1,874
$808
$316,928
158
6/2037
$1,869
$813
$316,115
159
7/2037
$1,865
$818
$315,297
160
8/2037
$1,860
$822
$314,475
161
9/2037
$1,855
$827
$313,648
162
10/2037
$1,850
$832
$312,815
163
11/2037
$1,845
$837
$311,978
164
12/2037
$1,840
$842
$311,136
165
1/2038
$1,835
$847
$310,289
166
2/2038
$1,830
$852
$309,437
167
3/2038
$1,825
$857
$308,580
168
4/2038
$1,820
$862
$307,718
End of year 14
169
5/2038
$1,815
$867
$306,851
170
6/2038
$1,810
$872
$305,979
171
7/2038
$1,805
$877
$305,101
172
8/2038
$1,800
$883
$304,219
173
9/2038
$1,794
$888
$303,331
174
10/2038
$1,789
$893
$302,438
175
11/2038
$1,784
$898
$301,539
176
12/2038
$1,779
$904
$300,636
177
1/2039
$1,773
$909
$299,727
178
2/2039
$1,768
$914
$298,813
179
3/2039
$1,762
$920
$297,893
180
4/2039
$1,757
$925
$296,968
End of year 15
181
5/2039
$1,752
$931
$296,037
182
6/2039
$1,746
$936
$295,101
183
7/2039
$1,741
$942
$294,159
184
8/2039
$1,735
$947
$293,212
185
9/2039
$1,729
$953
$292,260
186
10/2039
$1,724
$958
$291,301
187
11/2039
$1,718
$964
$290,337
188
12/2039
$1,713
$970
$289,368
189
1/2040
$1,707
$975
$288,392
190
2/2040
$1,701
$981
$287,411
191
3/2040
$1,695
$987
$286,424
192
4/2040
$1,689
$993
$285,431
End of year 16
193
5/2040
$1,684
$999
$284,433
194
6/2040
$1,678
$1,005
$283,428
195
7/2040
$1,672
$1,010
$282,418
196
8/2040
$1,666
$1,016
$281,401
197
9/2040
$1,660
$1,022
$280,379
198
10/2040
$1,654
$1,028
$279,350
199
11/2040
$1,648
$1,034
$278,316
200
12/2040
$1,642
$1,041
$277,275
201
1/2041
$1,635
$1,047
$276,229
202
2/2041
$1,629
$1,053
$275,176
203
3/2041
$1,623
$1,059
$274,117
204
4/2041
$1,617
$1,065
$273,051
End of year 17
205
5/2041
$1,611
$1,072
$271,980
206
6/2041
$1,604
$1,078
$270,902
207
7/2041
$1,598
$1,084
$269,817
208
8/2041
$1,591
$1,091
$268,727
209
9/2041
$1,585
$1,097
$267,629
210
10/2041
$1,579
$1,104
$266,526
211
11/2041
$1,572
$1,110
$265,416
212
12/2041
$1,566
$1,117
$264,299
213
1/2042
$1,559
$1,123
$263,176
214
2/2042
$1,552
$1,130
$262,046
215
3/2042
$1,546
$1,137
$260,909
216
4/2042
$1,539
$1,143
$259,766
End of year 18
217
5/2042
$1,532
$1,150
$258,616
218
6/2042
$1,525
$1,157
$257,459
219
7/2042
$1,519
$1,164
$256,296
220
8/2042
$1,512
$1,170
$255,125
221
9/2042
$1,505
$1,177
$253,948
222
10/2042
$1,498
$1,184
$252,763
223
11/2042
$1,491
$1,191
$251,572
224
12/2042
$1,484
$1,198
$250,374
225
1/2043
$1,477
$1,205
$249,168
226
2/2043
$1,470
$1,213
$247,956
227
3/2043
$1,463
$1,220
$246,736
228
4/2043
$1,455
$1,227
$245,509
End of year 19
229
5/2043
$1,448
$1,234
$244,275
230
6/2043
$1,441
$1,241
$243,034
231
7/2043
$1,433
$1,249
$241,785
232
8/2043
$1,426
$1,256
$240,529
233
9/2043
$1,419
$1,263
$239,265
234
10/2043
$1,411
$1,271
$237,995
235
11/2043
$1,404
$1,278
$236,716
236
12/2043
$1,396
$1,286
$235,430
237
1/2044
$1,389
$1,294
$234,137
238
2/2044
$1,381
$1,301
$232,835
239
3/2044
$1,373
$1,309
$231,527
240
4/2044
$1,366
$1,317
$230,210
End of year 20
241
5/2044
$1,358
$1,324
$228,886
242
6/2044
$1,350
$1,332
$227,553
243
7/2044
$1,342
$1,340
$226,213
244
8/2044
$1,334
$1,348
$224,866
245
9/2044
$1,326
$1,356
$223,510
246
10/2044
$1,318
$1,364
$222,146
247
11/2044
$1,310
$1,372
$220,774
248
12/2044
$1,302
$1,380
$219,394
249
1/2045
$1,294
$1,388
$218,006
250
2/2045
$1,286
$1,396
$216,609
251
3/2045
$1,278
$1,405
$215,205
252
4/2045
$1,269
$1,413
$213,792
End of year 21
253
5/2045
$1,261
$1,421
$212,371
254
6/2045
$1,253
$1,430
$210,941
255
7/2045
$1,244
$1,438
$209,503
256
8/2045
$1,236
$1,446
$208,057
257
9/2045
$1,227
$1,455
$206,602
258
10/2045
$1,219
$1,464
$205,138
259
11/2045
$1,210
$1,472
$203,666
260
12/2045
$1,201
$1,481
$202,185
261
1/2046
$1,193
$1,490
$200,695
262
2/2046
$1,184
$1,498
$199,197
263
3/2046
$1,175
$1,507
$197,690
264
4/2046
$1,166
$1,516
$196,174
End of year 22
265
5/2046
$1,157
$1,525
$194,649
266
6/2046
$1,148
$1,534
$193,114
267
7/2046
$1,139
$1,543
$191,571
268
8/2046
$1,130
$1,552
$190,019
269
9/2046
$1,121
$1,561
$188,458
270
10/2046
$1,112
$1,571
$186,887
271
11/2046
$1,102
$1,580
$185,307
272
12/2046
$1,093
$1,589
$183,718
273
1/2047
$1,084
$1,599
$182,119
274
2/2047
$1,074
$1,608
$180,511
275
3/2047
$1,065
$1,617
$178,894
276
4/2047
$1,055
$1,627
$177,267
End of year 23
277
5/2047
$1,046
$1,637
$175,630
278
6/2047
$1,036
$1,646
$173,984
279
7/2047
$1,026
$1,656
$172,328
280
8/2047
$1,016
$1,666
$170,662
281
9/2047
$1,007
$1,676
$168,987
282
10/2047
$997
$1,685
$167,301
283
11/2047
$987
$1,695
$165,606
284
12/2047
$977
$1,705
$163,900
285
1/2048
$967
$1,715
$162,185
286
2/2048
$957
$1,726
$160,459
287
3/2048
$946
$1,736
$158,724
288
4/2048
$936
$1,746
$156,978
End of year 24
289
5/2048
$926
$1,756
$155,221
290
6/2048
$916
$1,767
$153,455
291
7/2048
$905
$1,777
$151,678
292
8/2048
$895
$1,788
$149,890
293
9/2048
$884
$1,798
$148,092
294
10/2048
$873
$1,809
$146,283
295
11/2048
$863
$1,819
$144,464
296
12/2048
$852
$1,830
$142,634
297
1/2049
$841
$1,841
$140,793
298
2/2049
$830
$1,852
$138,941
299
3/2049
$820
$1,863
$137,079
300
4/2049
$809
$1,874
$135,205
End of year 25
301
5/2049
$797
$1,885
$133,320
302
6/2049
$786
$1,896
$131,424
303
7/2049
$775
$1,907
$129,517
304
8/2049
$764
$1,918
$127,599
305
9/2049
$753
$1,930
$125,669
306
10/2049
$741
$1,941
$123,729
307
11/2049
$730
$1,952
$121,776
308
12/2049
$718
$1,964
$119,812
309
1/2050
$707
$1,976
$117,837
310
2/2050
$695
$1,987
$115,850
311
3/2050
$683
$1,999
$113,851
312
4/2050
$672
$2,011
$111,840
End of year 26
313
5/2050
$660
$2,023
$109,817
314
6/2050
$648
$2,034
$107,783
315
7/2050
$636
$2,046
$105,737
316
8/2050
$624
$2,059
$103,678
317
9/2050
$612
$2,071
$101,607
318
10/2050
$599
$2,083
$99,524
319
11/2050
$587
$2,095
$97,429
320
12/2050
$575
$2,108
$95,322
321
1/2051
$562
$2,120
$93,202
322
2/2051
$550
$2,132
$91,069
323
3/2051
$537
$2,145
$88,924
324
4/2051
$525
$2,158
$86,767
End of year 27
325
5/2051
$512
$2,170
$84,596
326
6/2051
$499
$2,183
$82,413
327
7/2051
$486
$2,196
$80,217
328
8/2051
$473
$2,209
$78,008
329
9/2051
$460
$2,222
$75,786
330
10/2051
$447
$2,235
$73,551
331
11/2051
$434
$2,248
$71,302
332
12/2051
$421
$2,262
$69,041
333
1/2052
$407
$2,275
$66,766
334
2/2052
$394
$2,288
$64,477
335
3/2052
$380
$2,302
$62,175
336
4/2052
$367
$2,315
$59,860
End of year 28
337
5/2052
$353
$2,329
$57,531
338
6/2052
$339
$2,343
$55,188
339
7/2052
$326
$2,357
$52,831
340
8/2052
$312
$2,371
$50,461
341
9/2052
$298
$2,385
$48,076
342
10/2052
$284
$2,399
$45,677
343
11/2052
$269
$2,413
$43,265
344
12/2052
$255
$2,427
$40,838
345
1/2053
$241
$2,441
$38,396
346
2/2053
$226
$2,456
$35,941
347
3/2053
$212
$2,470
$33,470
348
4/2053
$197
$2,485
$30,986
End of year 29
349
5/2053
$183
$2,499
$28,486
350
6/2053
$168
$2,514
$25,972
351
7/2053
$153
$2,529
$23,443
352
8/2053
$138
$2,544
$20,899
353
9/2053
$123
$2,559
$18,340
354
10/2053
$108
$2,574
$15,766
355
11/2053
$93
$2,589
$13,177
356
12/2053
$78
$2,604
$10,572
357
1/2054
$62
$2,620
$7,953
358
2/2054
$47
$2,635
$5,317
359
3/2054
$31
$2,651
$2,666
360
4/2054
$16
$2,666
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
5/24-4/25
$28,184
$4,003
$395,997
2
5/25-4/26
$27,891
$4,295
$391,702
3
5/26-4/27
$27,577
$4,609
$387,093
4
5/27-4/28
$27,240
$4,946
$382,147
5
5/28-4/29
$26,878
$5,308
$376,839
6
5/29-4/30
$26,490
$5,696
$371,142
7
5/30-4/31
$26,074
$6,113
$365,030
8
5/31-4/32
$25,627
$6,560
$358,470
9
5/32-4/33
$25,147
$7,039
$351,431
10
5/33-4/34
$24,632
$7,554
$343,877
11
5/34-4/35
$24,080
$8,106
$335,770
12
5/35-4/36
$23,487
$8,699
$327,071
13
5/36-4/37
$22,851
$9,335
$317,736
14
5/37-4/38
$22,169
$10,018
$307,718
15
5/38-4/39
$21,436
$10,750
$296,968
16
5/39-4/40
$20,650
$11,536
$285,431
17
5/40-4/41
$19,806
$12,380
$273,051
18
5/41-4/42
$18,901
$13,285
$259,766
19
5/42-4/43
$17,930
$14,257
$245,509
20
5/43-4/44
$16,887
$15,299
$230,210
21
5/44-4/45
$15,768
$16,418
$213,792
22
5/45-4/46
$14,568
$17,618
$196,174
23
5/46-4/47
$13,280
$18,907
$177,267
24
5/47-4/48
$11,897
$20,289
$156,978
25
5/48-4/49
$10,414
$21,773
$135,205
26
5/49-4/50
$8,821
$23,365
$111,840
27
5/50-4/51
$7,113
$25,073
$86,767
28
5/51-4/52
$5,280
$26,907
$59,860
29
5/52-4/53
$3,312
$28,874
$30,986
30
5/53-4/54
$1,201
$30,986
$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.