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: $2,652.35
Monthly
Total
Mortgage Payment
$2,652.35
$954,846.29
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
$3,777.35
$1,359,846.29
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$954,846.29
Total Interest
$554,846.29
Mortgage Payoff Date
Jan. 2055
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
01/2025
$2,322
$330
$399,670
2
2/2025
$2,320
$332
$399,338
3
3/2025
$2,318
$334
$399,004
4
4/2025
$2,317
$336
$398,668
5
5/2025
$2,315
$338
$398,331
6
6/2025
$2,313
$340
$397,991
7
7/2025
$2,311
$342
$397,649
8
8/2025
$2,309
$344
$397,306
9
9/2025
$2,307
$346
$396,960
10
10/2025
$2,305
$348
$396,612
11
11/2025
$2,303
$350
$396,263
12
12/2025
$2,301
$352
$395,911
End of year 1
13
1/2026
$2,299
$354
$395,557
14
2/2026
$2,297
$356
$395,201
15
3/2026
$2,294
$358
$394,843
16
4/2026
$2,292
$360
$394,483
17
5/2026
$2,290
$362
$394,121
18
6/2026
$2,288
$364
$393,757
19
7/2026
$2,286
$366
$393,391
20
8/2026
$2,284
$368
$393,023
21
9/2026
$2,282
$371
$392,652
22
10/2026
$2,280
$373
$392,279
23
11/2026
$2,278
$375
$391,905
24
12/2026
$2,275
$377
$391,528
End of year 2
25
1/2027
$2,273
$379
$391,148
26
2/2027
$2,271
$381
$390,767
27
3/2027
$2,269
$384
$390,383
28
4/2027
$2,267
$386
$389,997
29
5/2027
$2,264
$388
$389,609
30
6/2027
$2,262
$390
$389,219
31
7/2027
$2,260
$393
$388,826
32
8/2027
$2,257
$395
$388,432
33
9/2027
$2,255
$397
$388,034
34
10/2027
$2,253
$399
$387,635
35
11/2027
$2,251
$402
$387,233
36
12/2027
$2,248
$404
$386,829
End of year 3
37
1/2028
$2,246
$406
$386,422
38
2/2028
$2,244
$409
$386,014
39
3/2028
$2,241
$411
$385,602
40
4/2028
$2,239
$414
$385,189
41
5/2028
$2,236
$416
$384,773
42
6/2028
$2,234
$418
$384,354
43
7/2028
$2,231
$421
$383,933
44
8/2028
$2,229
$423
$383,510
45
9/2028
$2,227
$426
$383,084
46
10/2028
$2,224
$428
$382,656
47
11/2028
$2,222
$431
$382,225
48
12/2028
$2,219
$433
$381,792
End of year 4
49
1/2029
$2,217
$436
$381,357
50
2/2029
$2,214
$438
$380,918
51
3/2029
$2,212
$441
$380,477
52
4/2029
$2,209
$443
$380,034
53
5/2029
$2,206
$446
$379,588
54
6/2029
$2,204
$449
$379,140
55
7/2029
$2,201
$451
$378,689
56
8/2029
$2,199
$454
$378,235
57
9/2029
$2,196
$456
$377,778
58
10/2029
$2,193
$459
$377,319
59
11/2029
$2,191
$462
$376,858
60
12/2029
$2,188
$464
$376,393
End of year 5
61
1/2030
$2,185
$467
$375,926
62
2/2030
$2,183
$470
$375,456
63
3/2030
$2,180
$473
$374,984
64
4/2030
$2,177
$475
$374,509
65
5/2030
$2,174
$478
$374,031
66
6/2030
$2,172
$481
$373,550
67
7/2030
$2,169
$484
$373,066
68
8/2030
$2,166
$486
$372,580
69
9/2030
$2,163
$489
$372,091
70
10/2030
$2,160
$492
$371,599
71
11/2030
$2,157
$495
$371,104
72
12/2030
$2,155
$498
$370,606
End of year 6
73
1/2031
$2,152
$501
$370,105
74
2/2031
$2,149
$504
$369,602
75
3/2031
$2,146
$507
$369,095
76
4/2031
$2,143
$509
$368,586
77
5/2031
$2,140
$512
$368,073
78
6/2031
$2,137
$515
$367,558
79
7/2031
$2,134
$518
$367,040
80
8/2031
$2,131
$521
$366,518
81
9/2031
$2,128
$524
$365,994
82
10/2031
$2,125
$527
$365,466
83
11/2031
$2,122
$531
$364,936
84
12/2031
$2,119
$534
$364,402
End of year 7
85
1/2032
$2,116
$537
$363,865
86
2/2032
$2,113
$540
$363,326
87
3/2032
$2,109
$543
$362,783
88
4/2032
$2,106
$546
$362,237
89
5/2032
$2,103
$549
$361,687
90
6/2032
$2,100
$552
$361,135
91
7/2032
$2,097
$556
$360,579
92
8/2032
$2,093
$559
$360,020
93
9/2032
$2,090
$562
$359,458
94
10/2032
$2,087
$565
$358,893
95
11/2032
$2,084
$569
$358,324
96
12/2032
$2,080
$572
$357,752
End of year 8
97
1/2033
$2,077
$575
$357,177
98
2/2033
$2,074
$579
$356,598
99
3/2033
$2,070
$582
$356,016
100
4/2033
$2,067
$585
$355,431
101
5/2033
$2,064
$589
$354,842
102
6/2033
$2,060
$592
$354,250
103
7/2033
$2,057
$596
$353,654
104
8/2033
$2,053
$599
$353,055
105
9/2033
$2,050
$603
$352,453
106
10/2033
$2,046
$606
$351,847
107
11/2033
$2,043
$610
$351,237
108
12/2033
$2,039
$613
$350,624
End of year 9
109
1/2034
$2,036
$617
$350,007
110
2/2034
$2,032
$620
$349,387
111
3/2034
$2,028
$624
$348,763
112
4/2034
$2,025
$627
$348,135
113
5/2034
$2,021
$631
$347,504
114
6/2034
$2,018
$635
$346,870
115
7/2034
$2,014
$638
$346,231
116
8/2034
$2,010
$642
$345,589
117
9/2034
$2,006
$646
$344,943
118
10/2034
$2,003
$650
$344,293
119
11/2034
$1,999
$653
$343,640
120
12/2034
$1,995
$657
$342,983
End of year 10
121
1/2035
$1,991
$661
$342,322
122
2/2035
$1,987
$665
$341,657
123
3/2035
$1,984
$669
$340,988
124
4/2035
$1,980
$673
$340,315
125
5/2035
$1,976
$677
$339,639
126
6/2035
$1,972
$680
$338,958
127
7/2035
$1,968
$684
$338,274
128
8/2035
$1,964
$688
$337,585
129
9/2035
$1,960
$692
$336,893
130
10/2035
$1,956
$696
$336,197
131
11/2035
$1,952
$700
$335,496
132
12/2035
$1,948
$705
$334,792
End of year 11
133
1/2036
$1,944
$709
$334,083
134
2/2036
$1,940
$713
$333,370
135
3/2036
$1,935
$717
$332,654
136
4/2036
$1,931
$721
$331,933
137
5/2036
$1,927
$725
$331,207
138
6/2036
$1,923
$729
$330,478
139
7/2036
$1,919
$734
$329,744
140
8/2036
$1,914
$738
$329,006
141
9/2036
$1,910
$742
$328,264
142
10/2036
$1,906
$747
$327,518
143
11/2036
$1,902
$751
$326,767
144
12/2036
$1,897
$755
$326,012
End of year 12
145
1/2037
$1,893
$760
$325,252
146
2/2037
$1,888
$764
$324,488
147
3/2037
$1,884
$768
$323,720
148
4/2037
$1,879
$773
$322,947
149
5/2037
$1,875
$777
$322,169
150
6/2037
$1,870
$782
$321,387
151
7/2037
$1,866
$786
$320,601
152
8/2037
$1,861
$791
$319,810
153
9/2037
$1,857
$796
$319,014
154
10/2037
$1,852
$800
$318,214
155
11/2037
$1,847
$805
$317,409
156
12/2037
$1,843
$810
$316,600
End of year 13
157
1/2038
$1,838
$814
$315,786
158
2/2038
$1,833
$819
$314,967
159
3/2038
$1,829
$824
$314,143
160
4/2038
$1,824
$828
$313,314
161
5/2038
$1,819
$833
$312,481
162
6/2038
$1,814
$838
$311,643
163
7/2038
$1,809
$843
$310,800
164
8/2038
$1,804
$848
$309,952
165
9/2038
$1,800
$853
$309,099
166
10/2038
$1,795
$858
$308,242
167
11/2038
$1,790
$863
$307,379
168
12/2038
$1,785
$868
$306,511
End of year 14
169
1/2039
$1,780
$873
$305,638
170
2/2039
$1,774
$878
$304,760
171
3/2039
$1,769
$883
$303,877
172
4/2039
$1,764
$888
$302,989
173
5/2039
$1,759
$893
$302,096
174
6/2039
$1,754
$898
$301,198
175
7/2039
$1,749
$904
$300,294
176
8/2039
$1,743
$909
$299,385
177
9/2039
$1,738
$914
$298,471
178
10/2039
$1,733
$919
$297,551
179
11/2039
$1,728
$925
$296,627
180
12/2039
$1,722
$930
$295,696
End of year 15
181
1/2040
$1,717
$936
$294,761
182
2/2040
$1,711
$941
$293,820
183
3/2040
$1,706
$946
$292,873
184
4/2040
$1,700
$952
$291,921
185
5/2040
$1,695
$958
$290,964
186
6/2040
$1,689
$963
$290,001
187
7/2040
$1,684
$969
$289,032
188
8/2040
$1,678
$974
$288,058
189
9/2040
$1,672
$980
$287,078
190
10/2040
$1,667
$986
$286,092
191
11/2040
$1,661
$991
$285,101
192
12/2040
$1,655
$997
$284,104
End of year 16
193
1/2041
$1,649
$1,003
$283,101
194
2/2041
$1,644
$1,009
$282,092
195
3/2041
$1,638
$1,015
$281,078
196
4/2041
$1,632
$1,020
$280,057
197
5/2041
$1,626
$1,026
$279,031
198
6/2041
$1,620
$1,032
$277,999
199
7/2041
$1,614
$1,038
$276,960
200
8/2041
$1,608
$1,044
$275,916
201
9/2041
$1,602
$1,050
$274,865
202
10/2041
$1,596
$1,057
$273,809
203
11/2041
$1,590
$1,063
$272,746
204
12/2041
$1,584
$1,069
$271,677
End of year 17
205
1/2042
$1,577
$1,075
$270,602
206
2/2042
$1,571
$1,081
$269,521
207
3/2042
$1,565
$1,088
$268,433
208
4/2042
$1,558
$1,094
$267,340
209
5/2042
$1,552
$1,100
$266,239
210
6/2042
$1,546
$1,107
$265,133
211
7/2042
$1,539
$1,113
$264,020
212
8/2042
$1,533
$1,119
$262,900
213
9/2042
$1,526
$1,126
$261,774
214
10/2042
$1,520
$1,133
$260,642
215
11/2042
$1,513
$1,139
$259,503
216
12/2042
$1,507
$1,146
$258,357
End of year 18
217
1/2043
$1,500
$1,152
$257,205
218
2/2043
$1,493
$1,159
$256,045
219
3/2043
$1,487
$1,166
$254,880
220
4/2043
$1,480
$1,173
$253,707
221
5/2043
$1,473
$1,179
$252,528
222
6/2043
$1,466
$1,186
$251,342
223
7/2043
$1,459
$1,193
$250,148
224
8/2043
$1,452
$1,200
$248,948
225
9/2043
$1,445
$1,207
$247,741
226
10/2043
$1,438
$1,214
$246,527
227
11/2043
$1,431
$1,221
$245,306
228
12/2043
$1,424
$1,228
$244,078
End of year 19
229
1/2044
$1,417
$1,235
$242,843
230
2/2044
$1,410
$1,242
$241,600
231
3/2044
$1,403
$1,250
$240,351
232
4/2044
$1,395
$1,257
$239,094
233
5/2044
$1,388
$1,264
$237,830
234
6/2044
$1,381
$1,272
$236,558
235
7/2044
$1,373
$1,279
$235,279
236
8/2044
$1,366
$1,286
$233,993
237
9/2044
$1,359
$1,294
$232,699
238
10/2044
$1,351
$1,301
$231,398
239
11/2044
$1,343
$1,309
$230,089
240
12/2044
$1,336
$1,316
$228,772
End of year 20
241
1/2045
$1,328
$1,324
$227,448
242
2/2045
$1,321
$1,332
$226,116
243
3/2045
$1,313
$1,340
$224,777
244
4/2045
$1,305
$1,347
$223,429
245
5/2045
$1,297
$1,355
$222,074
246
6/2045
$1,289
$1,363
$220,711
247
7/2045
$1,281
$1,371
$219,340
248
8/2045
$1,273
$1,379
$217,961
249
9/2045
$1,265
$1,387
$216,575
250
10/2045
$1,257
$1,395
$215,180
251
11/2045
$1,249
$1,403
$213,776
252
12/2045
$1,241
$1,411
$212,365
End of year 21
253
1/2046
$1,233
$1,419
$210,946
254
2/2046
$1,225
$1,428
$209,518
255
3/2046
$1,216
$1,436
$208,082
256
4/2046
$1,208
$1,444
$206,638
257
5/2046
$1,200
$1,453
$205,185
258
6/2046
$1,191
$1,461
$203,724
259
7/2046
$1,183
$1,470
$202,255
260
8/2046
$1,174
$1,478
$200,777
261
9/2046
$1,166
$1,487
$199,290
262
10/2046
$1,157
$1,495
$197,795
263
11/2046
$1,148
$1,504
$196,291
264
12/2046
$1,140
$1,513
$194,778
End of year 22
265
1/2047
$1,131
$1,522
$193,257
266
2/2047
$1,122
$1,530
$191,726
267
3/2047
$1,113
$1,539
$190,187
268
4/2047
$1,104
$1,548
$188,639
269
5/2047
$1,095
$1,557
$187,082
270
6/2047
$1,086
$1,566
$185,515
271
7/2047
$1,077
$1,575
$183,940
272
8/2047
$1,068
$1,584
$182,356
273
9/2047
$1,059
$1,594
$180,762
274
10/2047
$1,049
$1,603
$179,159
275
11/2047
$1,040
$1,612
$177,547
276
12/2047
$1,031
$1,622
$175,926
End of year 23
277
1/2048
$1,021
$1,631
$174,295
278
2/2048
$1,012
$1,640
$172,654
279
3/2048
$1,002
$1,650
$171,004
280
4/2048
$993
$1,660
$169,345
281
5/2048
$983
$1,669
$167,676
282
6/2048
$973
$1,679
$165,997
283
7/2048
$964
$1,689
$164,308
284
8/2048
$954
$1,698
$162,610
285
9/2048
$944
$1,708
$160,901
286
10/2048
$934
$1,718
$159,183
287
11/2048
$924
$1,728
$157,455
288
12/2048
$914
$1,738
$155,717
End of year 24
289
1/2049
$904
$1,748
$153,969
290
2/2049
$894
$1,758
$152,210
291
3/2049
$884
$1,769
$150,441
292
4/2049
$873
$1,779
$148,663
293
5/2049
$863
$1,789
$146,873
294
6/2049
$853
$1,800
$145,074
295
7/2049
$842
$1,810
$143,264
296
8/2049
$832
$1,821
$141,443
297
9/2049
$821
$1,831
$139,612
298
10/2049
$811
$1,842
$137,770
299
11/2049
$800
$1,852
$135,918
300
12/2049
$789
$1,863
$134,054
End of year 25
301
1/2050
$778
$1,874
$132,180
302
2/2050
$767
$1,885
$130,295
303
3/2050
$756
$1,896
$128,400
304
4/2050
$745
$1,907
$126,493
305
5/2050
$734
$1,918
$124,575
306
6/2050
$723
$1,929
$122,646
307
7/2050
$712
$1,940
$120,705
308
8/2050
$701
$1,952
$118,754
309
9/2050
$689
$1,963
$116,791
310
10/2050
$678
$1,974
$114,817
311
11/2050
$667
$1,986
$112,831
312
12/2050
$655
$1,997
$110,834
End of year 26
313
1/2051
$643
$2,009
$108,825
314
2/2051
$632
$2,021
$106,804
315
3/2051
$620
$2,032
$104,772
316
4/2051
$608
$2,044
$102,728
317
5/2051
$596
$2,056
$100,672
318
6/2051
$584
$2,068
$98,604
319
7/2051
$572
$2,080
$96,524
320
8/2051
$560
$2,092
$94,432
321
9/2051
$548
$2,104
$92,328
322
10/2051
$536
$2,116
$90,212
323
11/2051
$524
$2,129
$88,083
324
12/2051
$511
$2,141
$85,942
End of year 27
325
1/2052
$499
$2,153
$83,789
326
2/2052
$486
$2,166
$81,623
327
3/2052
$474
$2,178
$79,445
328
4/2052
$461
$2,191
$77,253
329
5/2052
$449
$2,204
$75,050
330
6/2052
$436
$2,217
$72,833
331
7/2052
$423
$2,229
$70,603
332
8/2052
$410
$2,242
$68,361
333
9/2052
$397
$2,255
$66,106
334
10/2052
$384
$2,269
$63,837
335
11/2052
$371
$2,282
$61,555
336
12/2052
$357
$2,295
$59,260
End of year 28
337
1/2053
$344
$2,308
$56,952
338
2/2053
$331
$2,322
$54,630
339
3/2053
$317
$2,335
$52,295
340
4/2053
$304
$2,349
$49,946
341
5/2053
$290
$2,362
$47,584
342
6/2053
$276
$2,376
$45,208
343
7/2053
$262
$2,390
$42,818
344
8/2053
$249
$2,404
$40,414
345
9/2053
$235
$2,418
$37,997
346
10/2053
$221
$2,432
$35,565
347
11/2053
$206
$2,446
$33,119
348
12/2053
$192
$2,460
$30,659
End of year 29
349
1/2054
$178
$2,474
$28,185
350
2/2054
$164
$2,489
$25,696
351
3/2054
$149
$2,503
$23,193
352
4/2054
$135
$2,518
$20,675
353
5/2054
$120
$2,532
$18,143
354
6/2054
$105
$2,547
$15,596
355
7/2054
$91
$2,562
$13,034
356
8/2054
$76
$2,577
$10,457
357
9/2054
$61
$2,592
$7,866
358
10/2054
$46
$2,607
$5,259
359
11/2054
$31
$2,622
$2,637
360
12/2054
$15
$2,637
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
1/25-12/25
$27,739
$4,089
$395,911
2
1/26-12/26
$27,445
$4,383
$391,528
3
1/27-12/27
$27,130
$4,699
$386,829
4
1/28-12/28
$26,792
$5,037
$381,792
5
1/29-12/29
$26,429
$5,399
$376,393
6
1/30-12/30
$26,041
$5,787
$370,606
7
1/31-12/31
$25,624
$6,204
$364,402
8
1/32-12/32
$25,178
$6,650
$357,752
9
1/33-12/33
$24,700
$7,128
$350,624
10
1/34-12/34
$24,187
$7,641
$342,983
11
1/35-12/35
$23,637
$8,191
$334,792
12
1/36-12/36
$23,048
$8,780
$326,012
13
1/37-12/37
$22,416
$9,412
$316,600
14
1/38-12/38
$21,739
$10,089
$306,511
15
1/39-12/39
$21,014
$10,815
$295,696
16
1/40-12/40
$20,236
$11,593
$284,104
17
1/41-12/41
$19,402
$12,427
$271,677
18
1/42-12/42
$18,508
$13,320
$258,357
19
1/43-12/43
$17,549
$14,279
$244,078
20
1/44-12/44
$16,522
$15,306
$228,772
21
1/45-12/45
$15,421
$16,407
$212,365
22
1/46-12/46
$14,241
$17,587
$194,778
23
1/47-12/47
$12,976
$18,852
$175,926
24
1/48-12/48
$11,620
$20,209
$155,717
25
1/49-12/49
$10,166
$21,662
$134,054
26
1/50-12/50
$8,607
$23,221
$110,834
27
1/51-12/51
$6,937
$24,891
$85,942
28
1/52-12/52
$5,146
$26,682
$59,260
29
1/53-12/53
$3,227
$28,601
$30,659
30
1/54-12/54
$1,169
$30,659
$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.