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: $2,596.25
Monthly
Total
Mortgage Payment
$2,596.25
$934,651.40
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
$3,721.25
$1,339,651.40
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$934,651.40
Total Interest
$534,651.40
Mortgage Payoff Date
Oct. 2054
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
10/2024
$2,252
$344
$399,656
2
11/2024
$2,250
$346
$399,310
3
12/2024
$2,248
$348
$398,962
4
1/2025
$2,246
$350
$398,613
5
2/2025
$2,245
$352
$398,261
6
3/2025
$2,243
$354
$397,907
7
4/2025
$2,241
$356
$397,552
8
5/2025
$2,239
$358
$397,194
9
6/2025
$2,237
$360
$396,834
10
7/2025
$2,235
$362
$396,472
11
8/2025
$2,232
$364
$396,109
12
9/2025
$2,230
$366
$395,743
End of year 1
13
10/2025
$2,228
$368
$395,375
14
11/2025
$2,226
$370
$395,005
15
12/2025
$2,224
$372
$394,633
16
1/2026
$2,222
$374
$394,259
17
2/2026
$2,220
$376
$393,882
18
3/2026
$2,218
$378
$393,504
19
4/2026
$2,216
$380
$393,124
20
5/2026
$2,214
$383
$392,741
21
6/2026
$2,211
$385
$392,356
22
7/2026
$2,209
$387
$391,969
23
8/2026
$2,207
$389
$391,580
24
9/2026
$2,205
$391
$391,189
End of year 2
25
10/2026
$2,203
$394
$390,795
26
11/2026
$2,201
$396
$390,399
27
12/2026
$2,198
$398
$390,001
28
1/2027
$2,196
$400
$389,601
29
2/2027
$2,194
$402
$389,199
30
3/2027
$2,192
$405
$388,794
31
4/2027
$2,189
$407
$388,387
32
5/2027
$2,187
$409
$387,978
33
6/2027
$2,185
$412
$387,566
34
7/2027
$2,182
$414
$387,152
35
8/2027
$2,180
$416
$386,736
36
9/2027
$2,178
$419
$386,317
End of year 3
37
10/2027
$2,175
$421
$385,896
38
11/2027
$2,173
$423
$385,473
39
12/2027
$2,171
$426
$385,047
40
1/2028
$2,168
$428
$384,619
41
2/2028
$2,166
$431
$384,189
42
3/2028
$2,163
$433
$383,756
43
4/2028
$2,161
$435
$383,320
44
5/2028
$2,158
$438
$382,882
45
6/2028
$2,156
$440
$382,442
46
7/2028
$2,153
$443
$381,999
47
8/2028
$2,151
$445
$381,554
48
9/2028
$2,148
$448
$381,106
End of year 4
49
10/2028
$2,146
$450
$380,656
50
11/2028
$2,143
$453
$380,203
51
12/2028
$2,141
$455
$379,748
52
1/2029
$2,138
$458
$379,290
53
2/2029
$2,136
$461
$378,829
54
3/2029
$2,133
$463
$378,366
55
4/2029
$2,131
$466
$377,900
56
5/2029
$2,128
$468
$377,432
57
6/2029
$2,125
$471
$376,961
58
7/2029
$2,123
$474
$376,487
59
8/2029
$2,120
$476
$376,011
60
9/2029
$2,117
$479
$375,532
End of year 5
61
10/2029
$2,115
$482
$375,050
62
11/2029
$2,112
$484
$374,566
63
12/2029
$2,109
$487
$374,079
64
1/2030
$2,106
$490
$373,589
65
2/2030
$2,104
$493
$373,096
66
3/2030
$2,101
$495
$372,601
67
4/2030
$2,098
$498
$372,103
68
5/2030
$2,095
$501
$371,602
69
6/2030
$2,092
$504
$371,098
70
7/2030
$2,090
$507
$370,591
71
8/2030
$2,087
$510
$370,082
72
9/2030
$2,084
$512
$369,569
End of year 6
73
10/2030
$2,081
$515
$369,054
74
11/2030
$2,078
$518
$368,536
75
12/2030
$2,075
$521
$368,015
76
1/2031
$2,072
$524
$367,491
77
2/2031
$2,069
$527
$366,964
78
3/2031
$2,066
$530
$366,434
79
4/2031
$2,063
$533
$365,901
80
5/2031
$2,060
$536
$365,365
81
6/2031
$2,057
$539
$364,826
82
7/2031
$2,054
$542
$364,284
83
8/2031
$2,051
$545
$363,739
84
9/2031
$2,048
$548
$363,191
End of year 7
85
10/2031
$2,045
$551
$362,640
86
11/2031
$2,042
$554
$362,085
87
12/2031
$2,039
$557
$361,528
88
1/2032
$2,036
$561
$360,967
89
2/2032
$2,033
$564
$360,404
90
3/2032
$2,029
$567
$359,837
91
4/2032
$2,026
$570
$359,267
92
5/2032
$2,023
$573
$358,693
93
6/2032
$2,020
$577
$358,117
94
7/2032
$2,016
$580
$357,537
95
8/2032
$2,013
$583
$356,954
96
9/2032
$2,010
$586
$356,368
End of year 8
97
10/2032
$2,007
$590
$355,778
98
11/2032
$2,003
$593
$355,185
99
12/2032
$2,000
$596
$354,589
100
1/2033
$1,997
$600
$353,989
101
2/2033
$1,993
$603
$353,386
102
3/2033
$1,990
$606
$352,780
103
4/2033
$1,986
$610
$352,170
104
5/2033
$1,983
$613
$351,557
105
6/2033
$1,980
$617
$350,940
106
7/2033
$1,976
$620
$350,320
107
8/2033
$1,973
$624
$349,696
108
9/2033
$1,969
$627
$349,069
End of year 9
109
10/2033
$1,966
$631
$348,439
110
11/2033
$1,962
$634
$347,804
111
12/2033
$1,958
$638
$347,167
112
1/2034
$1,955
$641
$346,525
113
2/2034
$1,951
$645
$345,880
114
3/2034
$1,948
$649
$345,231
115
4/2034
$1,944
$652
$344,579
116
5/2034
$1,940
$656
$343,923
117
6/2034
$1,937
$660
$343,263
118
7/2034
$1,933
$663
$342,600
119
8/2034
$1,929
$667
$341,933
120
9/2034
$1,925
$671
$341,262
End of year 10
121
10/2034
$1,922
$675
$340,587
122
11/2034
$1,918
$678
$339,909
123
12/2034
$1,914
$682
$339,227
124
1/2035
$1,910
$686
$338,540
125
2/2035
$1,906
$690
$337,850
126
3/2035
$1,902
$694
$337,157
127
4/2035
$1,898
$698
$336,459
128
5/2035
$1,895
$702
$335,757
129
6/2035
$1,891
$706
$335,051
130
7/2035
$1,887
$710
$334,342
131
8/2035
$1,883
$714
$333,628
132
9/2035
$1,879
$718
$332,911
End of year 11
133
10/2035
$1,875
$722
$332,189
134
11/2035
$1,871
$726
$331,463
135
12/2035
$1,866
$730
$330,733
136
1/2036
$1,862
$734
$329,999
137
2/2036
$1,858
$738
$329,261
138
3/2036
$1,854
$742
$328,519
139
4/2036
$1,850
$746
$327,773
140
5/2036
$1,846
$751
$327,022
141
6/2036
$1,841
$755
$326,267
142
7/2036
$1,837
$759
$325,508
143
8/2036
$1,833
$763
$324,745
144
9/2036
$1,829
$768
$323,977
End of year 12
145
10/2036
$1,824
$772
$323,205
146
11/2036
$1,820
$776
$322,429
147
12/2036
$1,816
$781
$321,648
148
1/2037
$1,811
$785
$320,863
149
2/2037
$1,807
$790
$320,073
150
3/2037
$1,802
$794
$319,279
151
4/2037
$1,798
$798
$318,481
152
5/2037
$1,793
$803
$317,678
153
6/2037
$1,789
$807
$316,870
154
7/2037
$1,784
$812
$316,058
155
8/2037
$1,780
$817
$315,242
156
9/2037
$1,775
$821
$314,421
End of year 13
157
10/2037
$1,770
$826
$313,595
158
11/2037
$1,766
$830
$312,764
159
12/2037
$1,761
$835
$311,929
160
1/2038
$1,756
$840
$311,089
161
2/2038
$1,752
$845
$310,245
162
3/2038
$1,747
$849
$309,396
163
4/2038
$1,742
$854
$308,541
164
5/2038
$1,737
$859
$307,683
165
6/2038
$1,733
$864
$306,819
166
7/2038
$1,728
$869
$305,950
167
8/2038
$1,723
$873
$305,077
168
9/2038
$1,718
$878
$304,198
End of year 14
169
10/2038
$1,713
$883
$303,315
170
11/2038
$1,708
$888
$302,427
171
12/2038
$1,703
$893
$301,533
172
1/2039
$1,698
$898
$300,635
173
2/2039
$1,693
$903
$299,731
174
3/2039
$1,688
$909
$298,823
175
4/2039
$1,683
$914
$297,909
176
5/2039
$1,677
$919
$296,991
177
6/2039
$1,672
$924
$296,067
178
7/2039
$1,667
$929
$295,137
179
8/2039
$1,662
$934
$294,203
180
9/2039
$1,657
$940
$293,263
End of year 15
181
10/2039
$1,651
$945
$292,318
182
11/2039
$1,646
$950
$291,368
183
12/2039
$1,641
$956
$290,413
184
1/2040
$1,635
$961
$289,452
185
2/2040
$1,630
$966
$288,485
186
3/2040
$1,624
$972
$287,513
187
4/2040
$1,619
$977
$286,536
188
5/2040
$1,613
$983
$285,553
189
6/2040
$1,608
$988
$284,565
190
7/2040
$1,602
$994
$283,571
191
8/2040
$1,597
$1,000
$282,571
192
9/2040
$1,591
$1,005
$281,566
End of year 16
193
10/2040
$1,585
$1,011
$280,556
194
11/2040
$1,580
$1,016
$279,539
195
12/2040
$1,574
$1,022
$278,517
196
1/2041
$1,568
$1,028
$277,489
197
2/2041
$1,562
$1,034
$276,455
198
3/2041
$1,557
$1,040
$275,415
199
4/2041
$1,551
$1,045
$274,370
200
5/2041
$1,545
$1,051
$273,319
201
6/2041
$1,539
$1,057
$272,261
202
7/2041
$1,533
$1,063
$271,198
203
8/2041
$1,527
$1,069
$270,129
204
9/2041
$1,521
$1,075
$269,054
End of year 17
205
10/2041
$1,515
$1,081
$267,973
206
11/2041
$1,509
$1,087
$266,885
207
12/2041
$1,503
$1,093
$265,792
208
1/2042
$1,497
$1,100
$264,692
209
2/2042
$1,490
$1,106
$263,586
210
3/2042
$1,484
$1,112
$262,474
211
4/2042
$1,478
$1,118
$261,356
212
5/2042
$1,472
$1,125
$260,231
213
6/2042
$1,465
$1,131
$259,101
214
7/2042
$1,459
$1,137
$257,963
215
8/2042
$1,453
$1,144
$256,820
216
9/2042
$1,446
$1,150
$255,669
End of year 18
217
10/2042
$1,440
$1,157
$254,513
218
11/2042
$1,433
$1,163
$253,350
219
12/2042
$1,427
$1,170
$252,180
220
1/2043
$1,420
$1,176
$251,004
221
2/2043
$1,413
$1,183
$249,821
222
3/2043
$1,407
$1,190
$248,631
223
4/2043
$1,400
$1,196
$247,435
224
5/2043
$1,393
$1,203
$246,232
225
6/2043
$1,386
$1,210
$245,022
226
7/2043
$1,380
$1,217
$243,806
227
8/2043
$1,373
$1,223
$242,582
228
9/2043
$1,366
$1,230
$241,352
End of year 19
229
10/2043
$1,359
$1,237
$240,115
230
11/2043
$1,352
$1,244
$238,870
231
12/2043
$1,345
$1,251
$237,619
232
1/2044
$1,338
$1,258
$236,361
233
2/2044
$1,331
$1,265
$235,096
234
3/2044
$1,324
$1,272
$233,823
235
4/2044
$1,317
$1,280
$232,544
236
5/2044
$1,309
$1,287
$231,257
237
6/2044
$1,302
$1,294
$229,963
238
7/2044
$1,295
$1,301
$228,661
239
8/2044
$1,288
$1,309
$227,353
240
9/2044
$1,280
$1,316
$226,036
End of year 20
241
10/2044
$1,273
$1,323
$224,713
242
11/2044
$1,265
$1,331
$223,382
243
12/2044
$1,258
$1,338
$222,044
244
1/2045
$1,250
$1,346
$220,698
245
2/2045
$1,243
$1,354
$219,344
246
3/2045
$1,235
$1,361
$217,983
247
4/2045
$1,227
$1,369
$216,614
248
5/2045
$1,220
$1,377
$215,238
249
6/2045
$1,212
$1,384
$213,853
250
7/2045
$1,204
$1,392
$212,461
251
8/2045
$1,196
$1,400
$211,061
252
9/2045
$1,188
$1,408
$209,653
End of year 21
253
10/2045
$1,181
$1,416
$208,238
254
11/2045
$1,173
$1,424
$206,814
255
12/2045
$1,165
$1,432
$205,382
256
1/2046
$1,156
$1,440
$203,943
257
2/2046
$1,148
$1,448
$202,495
258
3/2046
$1,140
$1,456
$201,039
259
4/2046
$1,132
$1,464
$199,574
260
5/2046
$1,124
$1,472
$198,102
261
6/2046
$1,115
$1,481
$196,621
262
7/2046
$1,107
$1,489
$195,132
263
8/2046
$1,099
$1,497
$193,635
264
9/2046
$1,090
$1,506
$192,129
End of year 22
265
10/2046
$1,082
$1,514
$190,614
266
11/2046
$1,073
$1,523
$189,091
267
12/2046
$1,065
$1,532
$187,560
268
1/2047
$1,056
$1,540
$186,020
269
2/2047
$1,047
$1,549
$184,471
270
3/2047
$1,039
$1,558
$182,913
271
4/2047
$1,030
$1,566
$181,347
272
5/2047
$1,021
$1,575
$179,772
273
6/2047
$1,012
$1,584
$178,188
274
7/2047
$1,003
$1,593
$176,595
275
8/2047
$994
$1,602
$174,993
276
9/2047
$985
$1,611
$173,382
End of year 23
277
10/2047
$976
$1,620
$171,762
278
11/2047
$967
$1,629
$170,133
279
12/2047
$958
$1,638
$168,495
280
1/2048
$949
$1,647
$166,847
281
2/2048
$939
$1,657
$165,191
282
3/2048
$930
$1,666
$163,524
283
4/2048
$921
$1,675
$161,849
284
5/2048
$911
$1,685
$160,164
285
6/2048
$902
$1,694
$158,470
286
7/2048
$892
$1,704
$156,766
287
8/2048
$883
$1,714
$155,052
288
9/2048
$873
$1,723
$153,329
End of year 24
289
10/2048
$863
$1,733
$151,596
290
11/2048
$854
$1,743
$149,854
291
12/2048
$844
$1,752
$148,101
292
1/2049
$834
$1,762
$146,339
293
2/2049
$824
$1,772
$144,567
294
3/2049
$814
$1,782
$142,784
295
4/2049
$804
$1,792
$140,992
296
5/2049
$794
$1,802
$139,190
297
6/2049
$784
$1,812
$137,377
298
7/2049
$774
$1,823
$135,554
299
8/2049
$763
$1,833
$133,722
300
9/2049
$753
$1,843
$131,878
End of year 25
301
10/2049
$743
$1,854
$130,025
302
11/2049
$732
$1,864
$128,160
303
12/2049
$722
$1,875
$126,286
304
1/2050
$711
$1,885
$124,401
305
2/2050
$700
$1,896
$122,505
306
3/2050
$690
$1,906
$120,598
307
4/2050
$679
$1,917
$118,681
308
5/2050
$668
$1,928
$116,753
309
6/2050
$657
$1,939
$114,814
310
7/2050
$647
$1,950
$112,865
311
8/2050
$636
$1,961
$110,904
312
9/2050
$624
$1,972
$108,932
End of year 26
313
10/2050
$613
$1,983
$106,949
314
11/2050
$602
$1,994
$104,955
315
12/2050
$591
$2,005
$102,950
316
1/2051
$580
$2,017
$100,933
317
2/2051
$568
$2,028
$98,906
318
3/2051
$557
$2,039
$96,866
319
4/2051
$545
$2,051
$94,815
320
5/2051
$534
$2,062
$92,753
321
6/2051
$522
$2,074
$90,679
322
7/2051
$511
$2,086
$88,593
323
8/2051
$499
$2,097
$86,496
324
9/2051
$487
$2,109
$84,387
End of year 27
325
10/2051
$475
$2,121
$82,266
326
11/2051
$463
$2,133
$80,133
327
12/2051
$451
$2,145
$77,988
328
1/2052
$439
$2,157
$75,831
329
2/2052
$427
$2,169
$73,661
330
3/2052
$415
$2,181
$71,480
331
4/2052
$402
$2,194
$69,286
332
5/2052
$390
$2,206
$67,080
333
6/2052
$378
$2,219
$64,861
334
7/2052
$365
$2,231
$62,630
335
8/2052
$353
$2,244
$60,387
336
9/2052
$340
$2,256
$58,131
End of year 28
337
10/2052
$327
$2,269
$55,862
338
11/2052
$315
$2,282
$53,580
339
12/2052
$302
$2,295
$51,285
340
1/2053
$289
$2,307
$48,978
341
2/2053
$276
$2,320
$46,657
342
3/2053
$263
$2,334
$44,324
343
4/2053
$250
$2,347
$41,977
344
5/2053
$236
$2,360
$39,617
345
6/2053
$223
$2,373
$37,244
346
7/2053
$210
$2,387
$34,858
347
8/2053
$196
$2,400
$32,458
348
9/2053
$183
$2,413
$30,044
End of year 29
349
10/2053
$169
$2,427
$27,617
350
11/2053
$156
$2,441
$25,176
351
12/2053
$142
$2,454
$22,722
352
1/2054
$128
$2,468
$20,253
353
2/2054
$114
$2,482
$17,771
354
3/2054
$100
$2,496
$15,275
355
4/2054
$86
$2,510
$12,765
356
5/2054
$72
$2,524
$10,240
357
6/2054
$58
$2,539
$7,702
358
7/2054
$43
$2,553
$5,149
359
8/2054
$29
$2,567
$2,582
360
9/2054
$15
$2,582
$-0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
10/24-9/25
$26,898
$4,257
$395,743
2
10/25-9/26
$26,601
$4,554
$391,189
3
10/26-9/27
$26,284
$4,871
$386,317
4
10/27-9/28
$25,944
$5,211
$381,106
5
10/28-9/29
$25,581
$5,574
$375,532
6
10/29-9/30
$25,192
$5,963
$369,569
7
10/30-9/31
$24,777
$6,378
$363,191
8
10/31-9/32
$24,332
$6,823
$356,368
9
10/32-9/33
$23,856
$7,299
$349,069
10
10/33-9/34
$23,348
$7,807
$341,262
11
10/34-9/35
$22,804
$8,351
$332,911
12
10/35-9/36
$22,221
$8,934
$323,977
13
10/36-9/37
$21,599
$9,556
$314,421
14
10/37-9/38
$20,933
$10,222
$304,198
15
10/38-9/39
$20,220
$10,935
$293,263
16
10/39-9/40
$19,458
$11,697
$281,566
17
10/40-9/41
$18,643
$12,512
$269,054
18
10/41-9/42
$17,771
$13,385
$255,669
19
10/42-9/43
$16,838
$14,317
$241,352
20
10/43-9/44
$15,840
$15,315
$226,036
21
10/44-9/45
$14,772
$16,383
$209,653
22
10/45-9/46
$13,630
$17,525
$192,129
23
10/46-9/47
$12,409
$18,746
$173,382
24
10/47-9/48
$11,102
$20,053
$153,329
25
10/48-9/49
$9,704
$21,451
$131,878
26
10/49-9/50
$8,209
$22,946
$108,932
27
10/50-9/51
$6,610
$24,545
$84,387
28
10/51-9/52
$4,899
$26,256
$58,131
29
10/52-9/53
$3,069
$28,086
$30,044
30
10/53-9/54
$1,111
$30,044
$-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.