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: $2,619.97
Monthly
Total
Mortgage Payment
$2,619.97
$943,188.82
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
$3,744.97
$1,348,188.82
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$943,188.82
Total Interest
$543,188.82
Mortgage Payoff Date
Jan. 2055
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
01/2025
$2,282
$338
$399,662
2
2/2025
$2,280
$340
$399,322
3
3/2025
$2,278
$342
$398,980
4
4/2025
$2,276
$344
$398,637
5
5/2025
$2,274
$346
$398,291
6
6/2025
$2,272
$348
$397,943
7
7/2025
$2,270
$350
$397,593
8
8/2025
$2,268
$352
$397,242
9
9/2025
$2,266
$354
$396,888
10
10/2025
$2,264
$356
$396,532
11
11/2025
$2,262
$358
$396,174
12
12/2025
$2,260
$360
$395,815
End of year 1
13
1/2026
$2,258
$362
$395,453
14
2/2026
$2,256
$364
$395,089
15
3/2026
$2,254
$366
$394,723
16
4/2026
$2,252
$368
$394,355
17
5/2026
$2,250
$370
$393,985
18
6/2026
$2,248
$372
$393,612
19
7/2026
$2,246
$374
$393,238
20
8/2026
$2,243
$377
$392,861
21
9/2026
$2,241
$379
$392,483
22
10/2026
$2,239
$381
$392,102
23
11/2026
$2,237
$383
$391,719
24
12/2026
$2,235
$385
$391,334
End of year 2
25
1/2027
$2,233
$387
$390,946
26
2/2027
$2,230
$390
$390,557
27
3/2027
$2,228
$392
$390,165
28
4/2027
$2,226
$394
$389,771
29
5/2027
$2,224
$396
$389,374
30
6/2027
$2,221
$399
$388,976
31
7/2027
$2,219
$401
$388,575
32
8/2027
$2,217
$403
$388,172
33
9/2027
$2,215
$405
$387,766
34
10/2027
$2,212
$408
$387,359
35
11/2027
$2,210
$410
$386,948
36
12/2027
$2,208
$412
$386,536
End of year 3
37
1/2028
$2,205
$415
$386,121
38
2/2028
$2,203
$417
$385,704
39
3/2028
$2,200
$420
$385,285
40
4/2028
$2,198
$422
$384,863
41
5/2028
$2,196
$424
$384,438
42
6/2028
$2,193
$427
$384,012
43
7/2028
$2,191
$429
$383,582
44
8/2028
$2,188
$432
$383,151
45
9/2028
$2,186
$434
$382,717
46
10/2028
$2,183
$437
$382,280
47
11/2028
$2,181
$439
$381,841
48
12/2028
$2,178
$442
$381,399
End of year 4
49
1/2029
$2,176
$444
$380,955
50
2/2029
$2,173
$447
$380,509
51
3/2029
$2,171
$449
$380,060
52
4/2029
$2,168
$452
$379,608
53
5/2029
$2,166
$454
$379,154
54
6/2029
$2,163
$457
$378,697
55
7/2029
$2,160
$460
$378,237
56
8/2029
$2,158
$462
$377,775
57
9/2029
$2,155
$465
$377,310
58
10/2029
$2,153
$467
$376,843
59
11/2029
$2,150
$470
$376,373
60
12/2029
$2,147
$473
$375,900
End of year 5
61
1/2030
$2,145
$475
$375,425
62
2/2030
$2,142
$478
$374,946
63
3/2030
$2,139
$481
$374,465
64
4/2030
$2,136
$484
$373,982
65
5/2030
$2,134
$486
$373,495
66
6/2030
$2,131
$489
$373,006
67
7/2030
$2,128
$492
$372,514
68
8/2030
$2,125
$495
$372,020
69
9/2030
$2,122
$498
$371,522
70
10/2030
$2,120
$500
$371,021
71
11/2030
$2,117
$503
$370,518
72
12/2030
$2,114
$506
$370,012
End of year 6
73
1/2031
$2,111
$509
$369,503
74
2/2031
$2,108
$512
$368,991
75
3/2031
$2,105
$515
$368,476
76
4/2031
$2,102
$518
$367,958
77
5/2031
$2,099
$521
$367,438
78
6/2031
$2,096
$524
$366,914
79
7/2031
$2,093
$527
$366,387
80
8/2031
$2,090
$530
$365,857
81
9/2031
$2,087
$533
$365,325
82
10/2031
$2,084
$536
$364,789
83
11/2031
$2,081
$539
$364,250
84
12/2031
$2,078
$542
$363,708
End of year 7
85
1/2032
$2,075
$545
$363,163
86
2/2032
$2,072
$548
$362,615
87
3/2032
$2,069
$551
$362,064
88
4/2032
$2,066
$554
$361,509
89
5/2032
$2,062
$558
$360,952
90
6/2032
$2,059
$561
$360,391
91
7/2032
$2,056
$564
$359,827
92
8/2032
$2,053
$567
$359,260
93
9/2032
$2,050
$570
$358,690
94
10/2032
$2,046
$574
$358,116
95
11/2032
$2,043
$577
$357,539
96
12/2032
$2,040
$580
$356,959
End of year 8
97
1/2033
$2,036
$584
$356,375
98
2/2033
$2,033
$587
$355,788
99
3/2033
$2,030
$590
$355,198
100
4/2033
$2,026
$594
$354,605
101
5/2033
$2,023
$597
$354,008
102
6/2033
$2,020
$600
$353,407
103
7/2033
$2,016
$604
$352,804
104
8/2033
$2,013
$607
$352,196
105
9/2033
$2,009
$611
$351,586
106
10/2033
$2,006
$614
$350,971
107
11/2033
$2,002
$618
$350,354
108
12/2033
$1,999
$621
$349,733
End of year 9
109
1/2034
$1,995
$625
$349,108
110
2/2034
$1,992
$628
$348,479
111
3/2034
$1,988
$632
$347,848
112
4/2034
$1,984
$635
$347,212
113
5/2034
$1,981
$639
$346,573
114
6/2034
$1,977
$643
$345,930
115
7/2034
$1,974
$646
$345,284
116
8/2034
$1,970
$650
$344,634
117
9/2034
$1,966
$654
$343,980
118
10/2034
$1,962
$658
$343,322
119
11/2034
$1,959
$661
$342,661
120
12/2034
$1,955
$665
$341,996
End of year 10
121
1/2035
$1,951
$669
$341,327
122
2/2035
$1,947
$673
$340,654
123
3/2035
$1,943
$677
$339,978
124
4/2035
$1,940
$680
$339,297
125
5/2035
$1,936
$684
$338,613
126
6/2035
$1,932
$688
$337,925
127
7/2035
$1,928
$692
$337,233
128
8/2035
$1,924
$696
$336,537
129
9/2035
$1,920
$700
$335,837
130
10/2035
$1,916
$704
$335,133
131
11/2035
$1,912
$708
$334,425
132
12/2035
$1,908
$712
$333,713
End of year 11
133
1/2036
$1,904
$716
$332,996
134
2/2036
$1,900
$720
$332,276
135
3/2036
$1,896
$724
$331,552
136
4/2036
$1,892
$728
$330,823
137
5/2036
$1,887
$733
$330,091
138
6/2036
$1,883
$737
$329,354
139
7/2036
$1,879
$741
$328,613
140
8/2036
$1,875
$745
$327,868
141
9/2036
$1,870
$749
$327,118
142
10/2036
$1,866
$754
$326,364
143
11/2036
$1,862
$758
$325,606
144
12/2036
$1,858
$762
$324,844
End of year 12
145
1/2037
$1,853
$767
$324,077
146
2/2037
$1,849
$771
$323,306
147
3/2037
$1,844
$776
$322,531
148
4/2037
$1,840
$780
$321,751
149
5/2037
$1,836
$784
$320,966
150
6/2037
$1,831
$789
$320,178
151
7/2037
$1,827
$793
$319,384
152
8/2037
$1,822
$798
$318,586
153
9/2037
$1,818
$802
$317,784
154
10/2037
$1,813
$807
$316,977
155
11/2037
$1,808
$812
$316,165
156
12/2037
$1,804
$816
$315,349
End of year 13
157
1/2038
$1,799
$821
$314,528
158
2/2038
$1,794
$826
$313,702
159
3/2038
$1,790
$830
$312,872
160
4/2038
$1,785
$835
$312,037
161
5/2038
$1,780
$840
$311,197
162
6/2038
$1,775
$845
$310,353
163
7/2038
$1,771
$849
$309,503
164
8/2038
$1,766
$854
$308,649
165
9/2038
$1,761
$859
$307,790
166
10/2038
$1,756
$864
$306,926
167
11/2038
$1,751
$869
$306,057
168
12/2038
$1,746
$874
$305,183
End of year 14
169
1/2039
$1,741
$879
$304,304
170
2/2039
$1,736
$884
$303,420
171
3/2039
$1,731
$889
$302,531
172
4/2039
$1,726
$894
$301,637
173
5/2039
$1,721
$899
$300,738
174
6/2039
$1,716
$904
$299,834
175
7/2039
$1,711
$909
$298,924
176
8/2039
$1,705
$915
$298,010
177
9/2039
$1,700
$920
$297,090
178
10/2039
$1,695
$925
$296,165
179
11/2039
$1,690
$930
$295,235
180
12/2039
$1,684
$936
$294,299
End of year 15
181
1/2040
$1,679
$941
$293,358
182
2/2040
$1,674
$946
$292,412
183
3/2040
$1,668
$952
$291,460
184
4/2040
$1,663
$957
$290,503
185
5/2040
$1,657
$963
$289,540
186
6/2040
$1,652
$968
$288,572
187
7/2040
$1,646
$974
$287,598
188
8/2040
$1,641
$979
$286,619
189
9/2040
$1,635
$985
$285,634
190
10/2040
$1,630
$990
$284,644
191
11/2040
$1,624
$996
$283,648
192
12/2040
$1,618
$1,002
$282,646
End of year 16
193
1/2041
$1,612
$1,007
$281,638
194
2/2041
$1,607
$1,013
$280,625
195
3/2041
$1,601
$1,019
$279,606
196
4/2041
$1,595
$1,025
$278,581
197
5/2041
$1,589
$1,031
$277,551
198
6/2041
$1,583
$1,037
$276,514
199
7/2041
$1,578
$1,042
$275,472
200
8/2041
$1,572
$1,048
$274,423
201
9/2041
$1,566
$1,054
$273,369
202
10/2041
$1,560
$1,060
$272,309
203
11/2041
$1,554
$1,066
$271,242
204
12/2041
$1,547
$1,073
$270,170
End of year 17
205
1/2042
$1,541
$1,079
$269,091
206
2/2042
$1,535
$1,085
$268,006
207
3/2042
$1,529
$1,091
$266,915
208
4/2042
$1,523
$1,097
$265,818
209
5/2042
$1,516
$1,103
$264,714
210
6/2042
$1,510
$1,110
$263,605
211
7/2042
$1,504
$1,116
$262,489
212
8/2042
$1,497
$1,122
$261,366
213
9/2042
$1,491
$1,129
$260,237
214
10/2042
$1,485
$1,135
$259,102
215
11/2042
$1,478
$1,142
$257,960
216
12/2042
$1,472
$1,148
$256,812
End of year 18
217
1/2043
$1,465
$1,155
$255,657
218
2/2043
$1,459
$1,161
$254,496
219
3/2043
$1,452
$1,168
$253,327
220
4/2043
$1,445
$1,175
$252,153
221
5/2043
$1,439
$1,181
$250,971
222
6/2043
$1,432
$1,188
$249,783
223
7/2043
$1,425
$1,195
$248,588
224
8/2043
$1,418
$1,202
$247,386
225
9/2043
$1,411
$1,209
$246,178
226
10/2043
$1,404
$1,216
$244,962
227
11/2043
$1,398
$1,222
$243,740
228
12/2043
$1,391
$1,229
$242,510
End of year 19
229
1/2044
$1,384
$1,236
$241,274
230
2/2044
$1,376
$1,244
$240,030
231
3/2044
$1,369
$1,251
$238,780
232
4/2044
$1,362
$1,258
$237,522
233
5/2044
$1,355
$1,265
$236,257
234
6/2044
$1,348
$1,272
$234,985
235
7/2044
$1,341
$1,279
$233,706
236
8/2044
$1,333
$1,287
$232,419
237
9/2044
$1,326
$1,294
$231,125
238
10/2044
$1,319
$1,301
$229,824
239
11/2044
$1,311
$1,309
$228,515
240
12/2044
$1,304
$1,316
$227,198
End of year 20
241
1/2045
$1,296
$1,324
$225,875
242
2/2045
$1,289
$1,331
$224,543
243
3/2045
$1,281
$1,339
$223,204
244
4/2045
$1,273
$1,347
$221,858
245
5/2045
$1,266
$1,354
$220,503
246
6/2045
$1,258
$1,362
$219,141
247
7/2045
$1,250
$1,370
$217,772
248
8/2045
$1,242
$1,378
$216,394
249
9/2045
$1,235
$1,385
$215,009
250
10/2045
$1,227
$1,393
$213,615
251
11/2045
$1,219
$1,401
$212,214
252
12/2045
$1,211
$1,409
$210,805
End of year 21
253
1/2046
$1,203
$1,417
$209,387
254
2/2046
$1,195
$1,425
$207,962
255
3/2046
$1,186
$1,434
$206,528
256
4/2046
$1,178
$1,442
$205,087
257
5/2046
$1,170
$1,450
$203,637
258
6/2046
$1,162
$1,458
$202,179
259
7/2046
$1,153
$1,467
$200,712
260
8/2046
$1,145
$1,475
$199,237
261
9/2046
$1,137
$1,483
$197,754
262
10/2046
$1,128
$1,492
$196,262
263
11/2046
$1,120
$1,500
$194,762
264
12/2046
$1,111
$1,509
$193,253
End of year 22
265
1/2047
$1,103
$1,517
$191,735
266
2/2047
$1,094
$1,526
$190,209
267
3/2047
$1,085
$1,535
$188,674
268
4/2047
$1,076
$1,544
$187,131
269
5/2047
$1,068
$1,552
$185,578
270
6/2047
$1,059
$1,561
$184,017
271
7/2047
$1,050
$1,570
$182,447
272
8/2047
$1,041
$1,579
$180,868
273
9/2047
$1,032
$1,588
$179,280
274
10/2047
$1,023
$1,597
$177,683
275
11/2047
$1,014
$1,606
$176,076
276
12/2047
$1,005
$1,615
$174,461
End of year 23
277
1/2048
$995
$1,625
$172,836
278
2/2048
$986
$1,634
$171,202
279
3/2048
$977
$1,643
$169,559
280
4/2048
$967
$1,653
$167,906
281
5/2048
$958
$1,662
$166,244
282
6/2048
$948
$1,672
$164,573
283
7/2048
$939
$1,681
$162,892
284
8/2048
$929
$1,691
$161,201
285
9/2048
$920
$1,700
$159,501
286
10/2048
$910
$1,710
$157,791
287
11/2048
$900
$1,720
$156,071
288
12/2048
$890
$1,730
$154,341
End of year 24
289
1/2049
$881
$1,739
$152,602
290
2/2049
$871
$1,749
$150,853
291
3/2049
$861
$1,759
$149,093
292
4/2049
$851
$1,769
$147,324
293
5/2049
$840
$1,779
$145,544
294
6/2049
$830
$1,790
$143,755
295
7/2049
$820
$1,800
$141,955
296
8/2049
$810
$1,810
$140,145
297
9/2049
$800
$1,820
$138,324
298
10/2049
$789
$1,831
$136,493
299
11/2049
$779
$1,841
$134,652
300
12/2049
$768
$1,852
$132,800
End of year 25
301
1/2050
$758
$1,862
$130,938
302
2/2050
$747
$1,873
$129,065
303
3/2050
$736
$1,884
$127,181
304
4/2050
$726
$1,894
$125,287
305
5/2050
$715
$1,905
$123,382
306
6/2050
$704
$1,916
$121,466
307
7/2050
$693
$1,927
$119,539
308
8/2050
$682
$1,938
$117,601
309
9/2050
$671
$1,949
$115,652
310
10/2050
$660
$1,960
$113,692
311
11/2050
$649
$1,971
$111,720
312
12/2050
$637
$1,983
$109,738
End of year 26
313
1/2051
$626
$1,994
$107,744
314
2/2051
$615
$2,005
$105,738
315
3/2051
$603
$2,017
$103,722
316
4/2051
$592
$2,028
$101,693
317
5/2051
$580
$2,040
$99,654
318
6/2051
$569
$2,051
$97,602
319
7/2051
$557
$2,063
$95,539
320
8/2051
$545
$2,075
$93,464
321
9/2051
$533
$2,087
$91,377
322
10/2051
$521
$2,099
$89,279
323
11/2051
$509
$2,111
$87,168
324
12/2051
$497
$2,123
$85,045
End of year 27
325
1/2052
$485
$2,135
$82,911
326
2/2052
$473
$2,147
$80,764
327
3/2052
$461
$2,159
$78,604
328
4/2052
$448
$2,172
$76,433
329
5/2052
$436
$2,184
$74,249
330
6/2052
$424
$2,196
$72,053
331
7/2052
$411
$2,209
$69,844
332
8/2052
$398
$2,222
$67,622
333
9/2052
$386
$2,234
$65,388
334
10/2052
$373
$2,247
$63,141
335
11/2052
$360
$2,260
$60,881
336
12/2052
$347
$2,273
$58,609
End of year 28
337
1/2053
$334
$2,286
$56,323
338
2/2053
$321
$2,299
$54,024
339
3/2053
$308
$2,312
$51,713
340
4/2053
$295
$2,325
$49,388
341
5/2053
$282
$2,338
$47,049
342
6/2053
$268
$2,352
$44,698
343
7/2053
$255
$2,365
$42,333
344
8/2053
$242
$2,378
$39,954
345
9/2053
$228
$2,392
$37,562
346
10/2053
$214
$2,406
$35,157
347
11/2053
$201
$2,419
$32,737
348
12/2053
$187
$2,433
$30,304
End of year 29
349
1/2054
$173
$2,447
$27,857
350
2/2054
$159
$2,461
$25,396
351
3/2054
$145
$2,475
$22,921
352
4/2054
$131
$2,489
$20,432
353
5/2054
$117
$2,503
$17,928
354
6/2054
$102
$2,518
$15,411
355
7/2054
$88
$2,532
$12,879
356
8/2054
$73
$2,546
$10,332
357
9/2054
$59
$2,561
$7,771
358
10/2054
$44
$2,576
$5,195
359
11/2054
$30
$2,590
$2,605
360
12/2054
$15
$2,605
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
1/25-12/25
$27,254
$4,185
$395,815
2
1/26-12/26
$26,959
$4,481
$391,334
3
1/27-12/27
$26,642
$4,798
$386,536
4
1/28-12/28
$26,303
$5,137
$381,399
5
1/29-12/29
$25,940
$5,499
$375,900
6
1/30-12/30
$25,552
$5,888
$370,012
7
1/31-12/31
$25,136
$6,304
$363,708
8
1/32-12/32
$24,690
$6,749
$356,959
9
1/33-12/33
$24,213
$7,226
$349,733
10
1/34-12/34
$23,703
$7,737
$341,996
11
1/35-12/35
$23,156
$8,283
$333,713
12
1/36-12/36
$22,571
$8,869
$324,844
13
1/37-12/37
$21,945
$9,495
$315,349
14
1/38-12/38
$21,274
$10,166
$305,183
15
1/39-12/39
$20,556
$10,884
$294,299
16
1/40-12/40
$19,787
$11,653
$282,646
17
1/41-12/41
$18,963
$12,476
$270,170
18
1/42-12/42
$18,082
$13,358
$256,812
19
1/43-12/43
$17,138
$14,302
$242,510
20
1/44-12/44
$16,128
$15,312
$227,198
21
1/45-12/45
$15,046
$16,394
$210,805
22
1/46-12/46
$13,888
$17,552
$193,253
23
1/47-12/47
$12,648
$18,792
$174,461
24
1/48-12/48
$11,320
$20,120
$154,341
25
1/49-12/49
$9,899
$21,541
$132,800
26
1/50-12/50
$8,377
$23,063
$109,738
27
1/51-12/51
$6,747
$24,692
$85,045
28
1/52-12/52
$5,003
$26,437
$58,609
29
1/53-12/53
$3,135
$28,304
$30,304
30
1/54-12/54
$1,135
$30,304
$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.