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: $2,742.83
Monthly
Total
Mortgage Payment
$2,742.83
$987,417.86
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
$3,867.83
$1,392,417.86
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$987,417.86
Total Interest
$587,417.86
Mortgage Payoff Date
May. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
05/2024
$2,434
$309
$399,691
2
6/2024
$2,432
$311
$399,380
3
7/2024
$2,430
$313
$399,068
4
8/2024
$2,428
$314
$398,753
5
9/2024
$2,426
$316
$398,437
6
10/2024
$2,424
$318
$398,119
7
11/2024
$2,423
$320
$397,798
8
12/2024
$2,421
$322
$397,476
9
1/2025
$2,419
$324
$397,152
10
2/2025
$2,417
$326
$396,826
11
3/2025
$2,415
$328
$396,498
12
4/2025
$2,413
$330
$396,167
End of year 1
13
5/2025
$2,411
$332
$395,835
14
6/2025
$2,409
$334
$395,501
15
7/2025
$2,407
$336
$395,165
16
8/2025
$2,405
$338
$394,827
17
9/2025
$2,403
$340
$394,486
18
10/2025
$2,400
$342
$394,144
19
11/2025
$2,398
$344
$393,800
20
12/2025
$2,396
$347
$393,453
21
1/2026
$2,394
$349
$393,104
22
2/2026
$2,392
$351
$392,754
23
3/2026
$2,390
$353
$392,401
24
4/2026
$2,388
$355
$392,046
End of year 2
25
5/2026
$2,386
$357
$391,688
26
6/2026
$2,383
$359
$391,329
27
7/2026
$2,381
$362
$390,967
28
8/2026
$2,379
$364
$390,604
29
9/2026
$2,377
$366
$390,238
30
10/2026
$2,375
$368
$389,869
31
11/2026
$2,372
$370
$389,499
32
12/2026
$2,370
$373
$389,126
33
1/2027
$2,368
$375
$388,751
34
2/2027
$2,366
$377
$388,374
35
3/2027
$2,363
$380
$387,994
36
4/2027
$2,361
$382
$387,612
End of year 3
37
5/2027
$2,359
$384
$387,228
38
6/2027
$2,356
$387
$386,842
39
7/2027
$2,354
$389
$386,453
40
8/2027
$2,352
$391
$386,061
41
9/2027
$2,349
$394
$385,668
42
10/2027
$2,347
$396
$385,272
43
11/2027
$2,344
$398
$384,873
44
12/2027
$2,342
$401
$384,472
45
1/2028
$2,340
$403
$384,069
46
2/2028
$2,337
$406
$383,663
47
3/2028
$2,335
$408
$383,255
48
4/2028
$2,332
$411
$382,844
End of year 4
49
5/2028
$2,330
$413
$382,431
50
6/2028
$2,327
$416
$382,016
51
7/2028
$2,325
$418
$381,597
52
8/2028
$2,322
$421
$381,176
53
9/2028
$2,319
$423
$380,753
54
10/2028
$2,317
$426
$380,327
55
11/2028
$2,314
$429
$379,899
56
12/2028
$2,312
$431
$379,467
57
1/2029
$2,309
$434
$379,034
58
2/2029
$2,306
$436
$378,597
59
3/2029
$2,304
$439
$378,158
60
4/2029
$2,301
$442
$377,716
End of year 5
61
5/2029
$2,298
$444
$377,272
62
6/2029
$2,296
$447
$376,825
63
7/2029
$2,293
$450
$376,375
64
8/2029
$2,290
$453
$375,922
65
9/2029
$2,287
$455
$375,467
66
10/2029
$2,285
$458
$375,009
67
11/2029
$2,282
$461
$374,548
68
12/2029
$2,279
$464
$374,084
69
1/2030
$2,276
$467
$373,618
70
2/2030
$2,273
$469
$373,149
71
3/2030
$2,271
$472
$372,676
72
4/2030
$2,268
$475
$372,201
End of year 6
73
5/2030
$2,265
$478
$371,723
74
6/2030
$2,262
$481
$371,242
75
7/2030
$2,259
$484
$370,759
76
8/2030
$2,256
$487
$370,272
77
9/2030
$2,253
$490
$369,782
78
10/2030
$2,250
$493
$369,289
79
11/2030
$2,247
$496
$368,794
80
12/2030
$2,244
$499
$368,295
81
1/2031
$2,241
$502
$367,793
82
2/2031
$2,238
$505
$367,288
83
3/2031
$2,235
$508
$366,780
84
4/2031
$2,232
$511
$366,270
End of year 7
85
5/2031
$2,229
$514
$365,755
86
6/2031
$2,226
$517
$365,238
87
7/2031
$2,222
$520
$364,718
88
8/2031
$2,219
$524
$364,194
89
9/2031
$2,216
$527
$363,668
90
10/2031
$2,213
$530
$363,138
91
11/2031
$2,210
$533
$362,605
92
12/2031
$2,206
$536
$362,068
93
1/2032
$2,203
$540
$361,529
94
2/2032
$2,200
$543
$360,986
95
3/2032
$2,197
$546
$360,439
96
4/2032
$2,193
$550
$359,890
End of year 8
97
5/2032
$2,190
$553
$359,337
98
6/2032
$2,187
$556
$358,781
99
7/2032
$2,183
$560
$358,221
100
8/2032
$2,180
$563
$357,658
101
9/2032
$2,176
$566
$357,092
102
10/2032
$2,173
$570
$356,522
103
11/2032
$2,169
$573
$355,948
104
12/2032
$2,166
$577
$355,371
105
1/2033
$2,162
$580
$354,791
106
2/2033
$2,159
$584
$354,207
107
3/2033
$2,155
$587
$353,620
108
4/2033
$2,152
$591
$353,029
End of year 9
109
5/2033
$2,148
$595
$352,434
110
6/2033
$2,145
$598
$351,836
111
7/2033
$2,141
$602
$351,234
112
8/2033
$2,137
$606
$350,628
113
9/2033
$2,134
$609
$350,019
114
10/2033
$2,130
$613
$349,406
115
11/2033
$2,126
$617
$348,789
116
12/2033
$2,122
$620
$348,169
117
1/2034
$2,119
$624
$347,545
118
2/2034
$2,115
$628
$346,917
119
3/2034
$2,111
$632
$346,285
120
4/2034
$2,107
$636
$345,649
End of year 10
121
5/2034
$2,103
$640
$345,009
122
6/2034
$2,099
$643
$344,366
123
7/2034
$2,095
$647
$343,719
124
8/2034
$2,092
$651
$343,067
125
9/2034
$2,088
$655
$342,412
126
10/2034
$2,084
$659
$341,753
127
11/2034
$2,080
$663
$341,090
128
12/2034
$2,076
$667
$340,422
129
1/2035
$2,071
$671
$339,751
130
2/2035
$2,067
$675
$339,075
131
3/2035
$2,063
$680
$338,396
132
4/2035
$2,059
$684
$337,712
End of year 11
133
5/2035
$2,055
$688
$337,024
134
6/2035
$2,051
$692
$336,332
135
7/2035
$2,047
$696
$335,636
136
8/2035
$2,042
$700
$334,936
137
9/2035
$2,038
$705
$334,231
138
10/2035
$2,034
$709
$333,522
139
11/2035
$2,029
$713
$332,808
140
12/2035
$2,025
$718
$332,091
141
1/2036
$2,021
$722
$331,369
142
2/2036
$2,016
$726
$330,642
143
3/2036
$2,012
$731
$329,911
144
4/2036
$2,008
$735
$329,176
End of year 12
145
5/2036
$2,003
$740
$328,436
146
6/2036
$1,999
$744
$327,692
147
7/2036
$1,994
$749
$326,943
148
8/2036
$1,989
$753
$326,190
149
9/2036
$1,985
$758
$325,432
150
10/2036
$1,980
$763
$324,669
151
11/2036
$1,976
$767
$323,902
152
12/2036
$1,971
$772
$323,130
153
1/2037
$1,966
$777
$322,354
154
2/2037
$1,962
$781
$321,572
155
3/2037
$1,957
$786
$320,786
156
4/2037
$1,952
$791
$319,995
End of year 13
157
5/2037
$1,947
$796
$319,200
158
6/2037
$1,942
$800
$318,399
159
7/2037
$1,937
$805
$317,594
160
8/2037
$1,933
$810
$316,784
161
9/2037
$1,928
$815
$315,968
162
10/2037
$1,923
$820
$315,148
163
11/2037
$1,918
$825
$314,323
164
12/2037
$1,913
$830
$313,493
165
1/2038
$1,908
$835
$312,658
166
2/2038
$1,903
$840
$311,817
167
3/2038
$1,897
$845
$310,972
168
4/2038
$1,892
$851
$310,121
End of year 14
169
5/2038
$1,887
$856
$309,266
170
6/2038
$1,882
$861
$308,405
171
7/2038
$1,877
$866
$307,539
172
8/2038
$1,871
$871
$306,667
173
9/2038
$1,866
$877
$305,790
174
10/2038
$1,861
$882
$304,908
175
11/2038
$1,855
$887
$304,021
176
12/2038
$1,850
$893
$303,128
177
1/2039
$1,845
$898
$302,230
178
2/2039
$1,839
$904
$301,326
179
3/2039
$1,834
$909
$300,417
180
4/2039
$1,828
$915
$299,502
End of year 15
181
5/2039
$1,822
$920
$298,581
182
6/2039
$1,817
$926
$297,656
183
7/2039
$1,811
$932
$296,724
184
8/2039
$1,806
$937
$295,787
185
9/2039
$1,800
$943
$294,844
186
10/2039
$1,794
$949
$293,895
187
11/2039
$1,788
$954
$292,941
188
12/2039
$1,783
$960
$291,980
189
1/2040
$1,777
$966
$291,014
190
2/2040
$1,771
$972
$290,042
191
3/2040
$1,765
$978
$289,064
192
4/2040
$1,759
$984
$288,080
End of year 16
193
5/2040
$1,753
$990
$287,090
194
6/2040
$1,747
$996
$286,095
195
7/2040
$1,741
$1,002
$285,093
196
8/2040
$1,735
$1,008
$284,085
197
9/2040
$1,729
$1,014
$283,070
198
10/2040
$1,722
$1,020
$282,050
199
11/2040
$1,716
$1,027
$281,024
200
12/2040
$1,710
$1,033
$279,991
201
1/2041
$1,704
$1,039
$278,952
202
2/2041
$1,697
$1,045
$277,906
203
3/2041
$1,691
$1,052
$276,854
204
4/2041
$1,685
$1,058
$275,796
End of year 17
205
5/2041
$1,678
$1,065
$274,732
206
6/2041
$1,672
$1,071
$273,661
207
7/2041
$1,665
$1,078
$272,583
208
8/2041
$1,659
$1,084
$271,499
209
9/2041
$1,652
$1,091
$270,408
210
10/2041
$1,645
$1,097
$269,311
211
11/2041
$1,639
$1,104
$268,207
212
12/2041
$1,632
$1,111
$267,096
213
1/2042
$1,625
$1,118
$265,978
214
2/2042
$1,618
$1,124
$264,854
215
3/2042
$1,612
$1,131
$263,723
216
4/2042
$1,605
$1,138
$262,585
End of year 18
217
5/2042
$1,598
$1,145
$261,440
218
6/2042
$1,591
$1,152
$260,288
219
7/2042
$1,584
$1,159
$259,129
220
8/2042
$1,577
$1,166
$257,963
221
9/2042
$1,570
$1,173
$256,790
222
10/2042
$1,563
$1,180
$255,609
223
11/2042
$1,555
$1,187
$254,422
224
12/2042
$1,548
$1,195
$253,227
225
1/2043
$1,541
$1,202
$252,025
226
2/2043
$1,534
$1,209
$250,816
227
3/2043
$1,526
$1,217
$249,599
228
4/2043
$1,519
$1,224
$248,375
End of year 19
229
5/2043
$1,511
$1,231
$247,144
230
6/2043
$1,504
$1,239
$245,905
231
7/2043
$1,496
$1,246
$244,658
232
8/2043
$1,489
$1,254
$243,404
233
9/2043
$1,481
$1,262
$242,143
234
10/2043
$1,473
$1,269
$240,873
235
11/2043
$1,466
$1,277
$239,596
236
12/2043
$1,458
$1,285
$238,311
237
1/2044
$1,450
$1,293
$237,019
238
2/2044
$1,442
$1,301
$235,718
239
3/2044
$1,434
$1,308
$234,409
240
4/2044
$1,426
$1,316
$233,093
End of year 20
241
5/2044
$1,418
$1,324
$231,769
242
6/2044
$1,410
$1,333
$230,436
243
7/2044
$1,402
$1,341
$229,095
244
8/2044
$1,394
$1,349
$227,747
245
9/2044
$1,386
$1,357
$226,390
246
10/2044
$1,378
$1,365
$225,024
247
11/2044
$1,369
$1,374
$223,651
248
12/2044
$1,361
$1,382
$222,269
249
1/2045
$1,353
$1,390
$220,879
250
2/2045
$1,344
$1,399
$219,480
251
3/2045
$1,336
$1,407
$218,073
252
4/2045
$1,327
$1,416
$216,657
End of year 21
253
5/2045
$1,318
$1,424
$215,232
254
6/2045
$1,310
$1,433
$213,799
255
7/2045
$1,301
$1,442
$212,357
256
8/2045
$1,292
$1,451
$210,907
257
9/2045
$1,283
$1,459
$209,447
258
10/2045
$1,274
$1,468
$207,979
259
11/2045
$1,266
$1,477
$206,502
260
12/2045
$1,257
$1,486
$205,015
261
1/2046
$1,248
$1,495
$203,520
262
2/2046
$1,238
$1,504
$202,016
263
3/2046
$1,229
$1,514
$200,502
264
4/2046
$1,220
$1,523
$198,979
End of year 22
265
5/2046
$1,211
$1,532
$197,447
266
6/2046
$1,201
$1,541
$195,906
267
7/2046
$1,192
$1,551
$194,355
268
8/2046
$1,183
$1,560
$192,795
269
9/2046
$1,173
$1,570
$191,225
270
10/2046
$1,164
$1,579
$189,646
271
11/2046
$1,154
$1,589
$188,057
272
12/2046
$1,144
$1,598
$186,459
273
1/2047
$1,135
$1,608
$184,850
274
2/2047
$1,125
$1,618
$183,232
275
3/2047
$1,115
$1,628
$181,605
276
4/2047
$1,105
$1,638
$179,967
End of year 23
277
5/2047
$1,095
$1,648
$178,319
278
6/2047
$1,085
$1,658
$176,661
279
7/2047
$1,075
$1,668
$174,993
280
8/2047
$1,065
$1,678
$173,316
281
9/2047
$1,055
$1,688
$171,627
282
10/2047
$1,044
$1,698
$169,929
283
11/2047
$1,034
$1,709
$168,220
284
12/2047
$1,024
$1,719
$166,501
285
1/2048
$1,013
$1,730
$164,771
286
2/2048
$1,003
$1,740
$163,031
287
3/2048
$992
$1,751
$161,280
288
4/2048
$981
$1,761
$159,519
End of year 24
289
5/2048
$971
$1,772
$157,747
290
6/2048
$960
$1,783
$155,964
291
7/2048
$949
$1,794
$154,170
292
8/2048
$938
$1,805
$152,365
293
9/2048
$927
$1,816
$150,549
294
10/2048
$916
$1,827
$148,723
295
11/2048
$905
$1,838
$146,885
296
12/2048
$894
$1,849
$145,036
297
1/2049
$883
$1,860
$143,176
298
2/2049
$871
$1,872
$141,304
299
3/2049
$860
$1,883
$139,421
300
4/2049
$848
$1,894
$137,526
End of year 25
301
5/2049
$837
$1,906
$135,621
302
6/2049
$825
$1,918
$133,703
303
7/2049
$814
$1,929
$131,774
304
8/2049
$802
$1,941
$129,833
305
9/2049
$790
$1,953
$127,880
306
10/2049
$778
$1,965
$125,915
307
11/2049
$766
$1,977
$123,939
308
12/2049
$754
$1,989
$121,950
309
1/2050
$742
$2,001
$119,949
310
2/2050
$730
$2,013
$117,936
311
3/2050
$718
$2,025
$115,911
312
4/2050
$705
$2,038
$113,874
End of year 26
313
5/2050
$693
$2,050
$111,824
314
6/2050
$680
$2,062
$109,761
315
7/2050
$668
$2,075
$107,686
316
8/2050
$655
$2,088
$105,599
317
9/2050
$643
$2,100
$103,499
318
10/2050
$630
$2,113
$101,385
319
11/2050
$617
$2,126
$99,260
320
12/2050
$604
$2,139
$97,121
321
1/2051
$591
$2,152
$94,969
322
2/2051
$578
$2,165
$92,804
323
3/2051
$565
$2,178
$90,626
324
4/2051
$551
$2,191
$88,434
End of year 27
325
5/2051
$538
$2,205
$86,230
326
6/2051
$525
$2,218
$84,012
327
7/2051
$511
$2,232
$81,780
328
8/2051
$498
$2,245
$79,535
329
9/2051
$484
$2,259
$77,276
330
10/2051
$470
$2,273
$75,003
331
11/2051
$456
$2,286
$72,717
332
12/2051
$442
$2,300
$70,417
333
1/2052
$428
$2,314
$68,102
334
2/2052
$414
$2,328
$65,774
335
3/2052
$400
$2,343
$63,431
336
4/2052
$386
$2,357
$61,074
End of year 28
337
5/2052
$372
$2,371
$58,703
338
6/2052
$357
$2,386
$56,318
339
7/2052
$343
$2,400
$53,917
340
8/2052
$328
$2,415
$51,503
341
9/2052
$313
$2,429
$49,073
342
10/2052
$299
$2,444
$46,629
343
11/2052
$284
$2,459
$44,170
344
12/2052
$269
$2,474
$41,696
345
1/2053
$254
$2,489
$39,207
346
2/2053
$239
$2,504
$36,703
347
3/2053
$223
$2,519
$34,183
348
4/2053
$208
$2,535
$31,648
End of year 29
349
5/2053
$193
$2,550
$29,098
350
6/2053
$177
$2,566
$26,532
351
7/2053
$161
$2,581
$23,951
352
8/2053
$146
$2,597
$21,354
353
9/2053
$130
$2,613
$18,741
354
10/2053
$114
$2,629
$16,112
355
11/2053
$98
$2,645
$13,467
356
12/2053
$82
$2,661
$10,806
357
1/2054
$66
$2,677
$8,129
358
2/2054
$49
$2,693
$5,436
359
3/2054
$33
$2,710
$2,726
360
4/2054
$17
$2,726
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
5/24-4/25
$29,081
$3,833
$396,167
2
5/25-4/26
$28,792
$4,122
$392,046
3
5/26-4/27
$28,481
$4,433
$387,612
4
5/27-4/28
$28,146
$4,768
$382,844
5
5/28-4/29
$27,786
$5,128
$377,716
6
5/29-4/30
$27,399
$5,515
$372,201
7
5/30-4/31
$26,982
$5,932
$366,270
8
5/31-4/32
$26,534
$6,380
$359,890
9
5/32-4/33
$26,053
$6,861
$353,029
10
5/33-4/34
$25,534
$7,380
$345,649
11
5/34-4/35
$24,977
$7,937
$337,712
12
5/35-4/36
$24,378
$8,536
$329,176
13
5/36-4/37
$23,733
$9,181
$319,995
14
5/37-4/38
$23,040
$9,874
$310,121
15
5/38-4/39
$22,294
$10,620
$299,502
16
5/39-4/40
$21,492
$11,422
$288,080
17
5/40-4/41
$20,630
$12,284
$275,796
18
5/41-4/42
$19,702
$13,212
$262,585
19
5/42-4/43
$18,705
$14,209
$248,375
20
5/43-4/44
$17,632
$15,282
$233,093
21
5/44-4/45
$16,478
$16,436
$216,657
22
5/45-4/46
$15,236
$17,678
$198,979
23
5/46-4/47
$13,902
$19,012
$179,967
24
5/47-4/48
$12,466
$20,448
$159,519
25
5/48-4/49
$10,922
$21,992
$137,526
26
5/49-4/50
$9,261
$23,653
$113,874
27
5/50-4/51
$7,475
$25,439
$88,434
28
5/51-4/52
$5,554
$27,360
$61,074
29
5/52-4/53
$3,488
$29,426
$31,648
30
5/53-4/54
$1,266
$31,648
$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.