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: $2,578.19
Monthly
Total
Mortgage Payment
$2,578.19
$928,149.83
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
$3,703.19
$1,333,149.83
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$928,149.83
Total Interest
$528,149.83
Mortgage Payoff Date
Apr. 2055
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
04/2025
$2,230
$349
$399,651
2
5/2025
$2,228
$350
$399,301
3
6/2025
$2,226
$352
$398,949
4
7/2025
$2,224
$354
$398,594
5
8/2025
$2,222
$356
$398,238
6
9/2025
$2,220
$358
$397,879
7
10/2025
$2,218
$360
$397,519
8
11/2025
$2,216
$362
$397,157
9
12/2025
$2,214
$364
$396,792
10
1/2026
$2,212
$366
$396,426
11
2/2026
$2,210
$368
$396,058
12
3/2026
$2,208
$371
$395,687
End of year 1
13
4/2026
$2,206
$373
$395,314
14
5/2026
$2,204
$375
$394,940
15
6/2026
$2,201
$377
$394,563
16
7/2026
$2,199
$379
$394,184
17
8/2026
$2,197
$381
$393,803
18
9/2026
$2,195
$383
$393,420
19
10/2026
$2,193
$385
$393,035
20
11/2026
$2,191
$387
$392,648
21
12/2026
$2,189
$390
$392,258
22
1/2027
$2,187
$392
$391,866
23
2/2027
$2,184
$394
$391,473
24
3/2027
$2,182
$396
$391,077
End of year 2
25
4/2027
$2,180
$398
$390,678
26
5/2027
$2,178
$400
$390,278
27
6/2027
$2,175
$403
$389,875
28
7/2027
$2,173
$405
$389,470
29
8/2027
$2,171
$407
$389,063
30
9/2027
$2,169
$409
$388,653
31
10/2027
$2,166
$412
$388,242
32
11/2027
$2,164
$414
$387,828
33
12/2027
$2,162
$416
$387,411
34
1/2028
$2,159
$419
$386,992
35
2/2028
$2,157
$421
$386,571
36
3/2028
$2,155
$423
$386,148
End of year 3
37
4/2028
$2,152
$426
$385,722
38
5/2028
$2,150
$428
$385,294
39
6/2028
$2,148
$430
$384,864
40
7/2028
$2,145
$433
$384,431
41
8/2028
$2,143
$435
$383,996
42
9/2028
$2,140
$438
$383,558
43
10/2028
$2,138
$440
$383,118
44
11/2028
$2,136
$443
$382,675
45
12/2028
$2,133
$445
$382,230
46
1/2029
$2,131
$448
$381,782
47
2/2029
$2,128
$450
$381,332
48
3/2029
$2,126
$453
$380,880
End of year 4
49
4/2029
$2,123
$455
$380,425
50
5/2029
$2,121
$458
$379,967
51
6/2029
$2,118
$460
$379,507
52
7/2029
$2,115
$463
$379,044
53
8/2029
$2,113
$465
$378,579
54
9/2029
$2,110
$468
$378,111
55
10/2029
$2,108
$471
$377,640
56
11/2029
$2,105
$473
$377,167
57
12/2029
$2,102
$476
$376,691
58
1/2030
$2,100
$478
$376,213
59
2/2030
$2,097
$481
$375,732
60
3/2030
$2,094
$484
$375,248
End of year 5
61
4/2030
$2,092
$487
$374,761
62
5/2030
$2,089
$489
$374,272
63
6/2030
$2,086
$492
$373,780
64
7/2030
$2,084
$495
$373,285
65
8/2030
$2,081
$497
$372,788
66
9/2030
$2,078
$500
$372,288
67
10/2030
$2,075
$503
$371,785
68
11/2030
$2,072
$506
$371,279
69
12/2030
$2,070
$509
$370,770
70
1/2031
$2,067
$511
$370,259
71
2/2031
$2,064
$514
$369,745
72
3/2031
$2,061
$517
$369,227
End of year 6
73
4/2031
$2,058
$520
$368,707
74
5/2031
$2,055
$523
$368,184
75
6/2031
$2,052
$526
$367,659
76
7/2031
$2,049
$529
$367,130
77
8/2031
$2,046
$532
$366,598
78
9/2031
$2,043
$535
$366,063
79
10/2031
$2,040
$538
$365,526
80
11/2031
$2,038
$541
$364,985
81
12/2031
$2,034
$544
$364,441
82
1/2032
$2,031
$547
$363,894
83
2/2032
$2,028
$550
$363,345
84
3/2032
$2,025
$553
$362,792
End of year 7
85
4/2032
$2,022
$556
$362,236
86
5/2032
$2,019
$559
$361,677
87
6/2032
$2,016
$562
$361,115
88
7/2032
$2,013
$565
$360,549
89
8/2032
$2,010
$568
$359,981
90
9/2032
$2,007
$572
$359,409
91
10/2032
$2,003
$575
$358,835
92
11/2032
$2,000
$578
$358,257
93
12/2032
$1,997
$581
$357,675
94
1/2033
$1,994
$584
$357,091
95
2/2033
$1,990
$588
$356,503
96
3/2033
$1,987
$591
$355,912
End of year 8
97
4/2033
$1,984
$594
$355,318
98
5/2033
$1,981
$598
$354,720
99
6/2033
$1,977
$601
$354,119
100
7/2033
$1,974
$604
$353,515
101
8/2033
$1,971
$608
$352,907
102
9/2033
$1,967
$611
$352,296
103
10/2033
$1,964
$614
$351,682
104
11/2033
$1,960
$618
$351,064
105
12/2033
$1,957
$621
$350,443
106
1/2034
$1,953
$625
$349,818
107
2/2034
$1,950
$628
$349,190
108
3/2034
$1,946
$632
$348,558
End of year 9
109
4/2034
$1,943
$635
$347,923
110
5/2034
$1,939
$639
$347,284
111
6/2034
$1,936
$642
$346,642
112
7/2034
$1,932
$646
$345,996
113
8/2034
$1,929
$650
$345,346
114
9/2034
$1,925
$653
$344,693
115
10/2034
$1,921
$657
$344,036
116
11/2034
$1,918
$660
$343,376
117
12/2034
$1,914
$664
$342,711
118
1/2035
$1,910
$668
$342,044
119
2/2035
$1,907
$672
$341,372
120
3/2035
$1,903
$675
$340,697
End of year 10
121
4/2035
$1,899
$679
$340,018
122
5/2035
$1,895
$683
$339,335
123
6/2035
$1,892
$687
$338,648
124
7/2035
$1,888
$691
$337,958
125
8/2035
$1,884
$694
$337,263
126
9/2035
$1,880
$698
$336,565
127
10/2035
$1,876
$702
$335,863
128
11/2035
$1,872
$706
$335,157
129
12/2035
$1,868
$710
$334,447
130
1/2036
$1,864
$714
$333,733
131
2/2036
$1,860
$718
$333,015
132
3/2036
$1,856
$722
$332,293
End of year 11
133
4/2036
$1,852
$726
$331,567
134
5/2036
$1,848
$730
$330,837
135
6/2036
$1,844
$734
$330,103
136
7/2036
$1,840
$738
$329,365
137
8/2036
$1,836
$742
$328,623
138
9/2036
$1,832
$746
$327,876
139
10/2036
$1,828
$751
$327,126
140
11/2036
$1,823
$755
$326,371
141
12/2036
$1,819
$759
$325,612
142
1/2037
$1,815
$763
$324,849
143
2/2037
$1,811
$767
$324,081
144
3/2037
$1,806
$772
$323,310
End of year 12
145
4/2037
$1,802
$776
$322,534
146
5/2037
$1,798
$780
$321,753
147
6/2037
$1,794
$785
$320,969
148
7/2037
$1,789
$789
$320,180
149
8/2037
$1,785
$793
$319,386
150
9/2037
$1,780
$798
$318,588
151
10/2037
$1,776
$802
$317,786
152
11/2037
$1,771
$807
$316,979
153
12/2037
$1,767
$811
$316,168
154
1/2038
$1,762
$816
$315,352
155
2/2038
$1,758
$820
$314,532
156
3/2038
$1,753
$825
$313,707
End of year 13
157
4/2038
$1,749
$830
$312,877
158
5/2038
$1,744
$834
$312,043
159
6/2038
$1,739
$839
$311,204
160
7/2038
$1,735
$843
$310,361
161
8/2038
$1,730
$848
$309,513
162
9/2038
$1,725
$853
$308,660
163
10/2038
$1,721
$858
$307,802
164
11/2038
$1,716
$862
$306,939
165
12/2038
$1,711
$867
$306,072
166
1/2039
$1,706
$872
$305,200
167
2/2039
$1,701
$877
$304,323
168
3/2039
$1,696
$882
$303,441
End of year 14
169
4/2039
$1,691
$887
$302,555
170
5/2039
$1,686
$892
$301,663
171
6/2039
$1,682
$897
$300,766
172
7/2039
$1,677
$902
$299,864
173
8/2039
$1,671
$907
$298,958
174
9/2039
$1,666
$912
$298,046
175
10/2039
$1,661
$917
$297,129
176
11/2039
$1,656
$922
$296,207
177
12/2039
$1,651
$927
$295,280
178
1/2040
$1,646
$932
$294,348
179
2/2040
$1,641
$937
$293,410
180
3/2040
$1,636
$943
$292,468
End of year 15
181
4/2040
$1,630
$948
$291,520
182
5/2040
$1,625
$953
$290,567
183
6/2040
$1,620
$959
$289,608
184
7/2040
$1,614
$964
$288,644
185
8/2040
$1,609
$969
$287,675
186
9/2040
$1,604
$975
$286,700
187
10/2040
$1,598
$980
$285,720
188
11/2040
$1,593
$986
$284,735
189
12/2040
$1,587
$991
$283,744
190
1/2041
$1,582
$997
$282,747
191
2/2041
$1,576
$1,002
$281,745
192
3/2041
$1,570
$1,008
$280,737
End of year 16
193
4/2041
$1,565
$1,013
$279,724
194
5/2041
$1,559
$1,019
$278,705
195
6/2041
$1,554
$1,025
$277,680
196
7/2041
$1,548
$1,030
$276,650
197
8/2041
$1,542
$1,036
$275,614
198
9/2041
$1,536
$1,042
$274,572
199
10/2041
$1,531
$1,048
$273,524
200
11/2041
$1,525
$1,054
$272,471
201
12/2041
$1,519
$1,059
$271,411
202
1/2042
$1,513
$1,065
$270,346
203
2/2042
$1,507
$1,071
$269,275
204
3/2042
$1,501
$1,077
$268,198
End of year 17
205
4/2042
$1,495
$1,083
$267,114
206
5/2042
$1,489
$1,089
$266,025
207
6/2042
$1,483
$1,095
$264,930
208
7/2042
$1,477
$1,101
$263,828
209
8/2042
$1,471
$1,108
$262,721
210
9/2042
$1,464
$1,114
$261,607
211
10/2042
$1,458
$1,120
$260,487
212
11/2042
$1,452
$1,126
$259,361
213
12/2042
$1,446
$1,132
$258,229
214
1/2043
$1,439
$1,139
$257,090
215
2/2043
$1,433
$1,145
$255,945
216
3/2043
$1,427
$1,152
$254,793
End of year 18
217
4/2043
$1,420
$1,158
$253,635
218
5/2043
$1,414
$1,164
$252,471
219
6/2043
$1,407
$1,171
$251,300
220
7/2043
$1,401
$1,177
$250,122
221
8/2043
$1,394
$1,184
$248,939
222
9/2043
$1,388
$1,191
$247,748
223
10/2043
$1,381
$1,197
$246,551
224
11/2043
$1,374
$1,204
$245,347
225
12/2043
$1,368
$1,211
$244,136
226
1/2044
$1,361
$1,217
$242,919
227
2/2044
$1,354
$1,224
$241,695
228
3/2044
$1,347
$1,231
$240,464
End of year 19
229
4/2044
$1,340
$1,238
$239,226
230
5/2044
$1,333
$1,245
$237,981
231
6/2044
$1,327
$1,252
$236,730
232
7/2044
$1,320
$1,259
$235,471
233
8/2044
$1,313
$1,266
$234,205
234
9/2044
$1,306
$1,273
$232,933
235
10/2044
$1,298
$1,280
$231,653
236
11/2044
$1,291
$1,287
$230,366
237
12/2044
$1,284
$1,294
$229,072
238
1/2045
$1,277
$1,301
$227,771
239
2/2045
$1,270
$1,309
$226,462
240
3/2045
$1,262
$1,316
$225,146
End of year 20
241
4/2045
$1,255
$1,323
$223,823
242
5/2045
$1,248
$1,331
$222,492
243
6/2045
$1,240
$1,338
$221,154
244
7/2045
$1,233
$1,345
$219,809
245
8/2045
$1,225
$1,353
$218,456
246
9/2045
$1,218
$1,360
$217,096
247
10/2045
$1,210
$1,368
$215,728
248
11/2045
$1,203
$1,376
$214,352
249
12/2045
$1,195
$1,383
$212,968
250
1/2046
$1,187
$1,391
$211,577
251
2/2046
$1,179
$1,399
$210,179
252
3/2046
$1,172
$1,407
$208,772
End of year 21
253
4/2046
$1,164
$1,414
$207,358
254
5/2046
$1,156
$1,422
$205,935
255
6/2046
$1,148
$1,430
$204,505
256
7/2046
$1,140
$1,438
$203,067
257
8/2046
$1,132
$1,446
$201,620
258
9/2046
$1,124
$1,454
$200,166
259
10/2046
$1,116
$1,462
$198,704
260
11/2046
$1,108
$1,471
$197,233
261
12/2046
$1,099
$1,479
$195,754
262
1/2047
$1,091
$1,487
$194,267
263
2/2047
$1,083
$1,495
$192,772
264
3/2047
$1,075
$1,504
$191,268
End of year 22
265
4/2047
$1,066
$1,512
$189,756
266
5/2047
$1,058
$1,520
$188,236
267
6/2047
$1,049
$1,529
$186,707
268
7/2047
$1,041
$1,537
$185,169
269
8/2047
$1,032
$1,546
$183,623
270
9/2047
$1,024
$1,555
$182,069
271
10/2047
$1,015
$1,563
$180,505
272
11/2047
$1,006
$1,572
$178,933
273
12/2047
$997
$1,581
$177,353
274
1/2048
$989
$1,590
$175,763
275
2/2048
$980
$1,598
$174,164
276
3/2048
$971
$1,607
$172,557
End of year 23
277
4/2048
$962
$1,616
$170,941
278
5/2048
$953
$1,625
$169,315
279
6/2048
$944
$1,634
$167,681
280
7/2048
$935
$1,644
$166,038
281
8/2048
$926
$1,653
$164,385
282
9/2048
$916
$1,662
$162,723
283
10/2048
$907
$1,671
$161,052
284
11/2048
$898
$1,680
$159,371
285
12/2048
$888
$1,690
$157,682
286
1/2049
$879
$1,699
$155,982
287
2/2049
$869
$1,709
$154,274
288
3/2049
$860
$1,718
$152,555
End of year 24
289
4/2049
$850
$1,728
$150,827
290
5/2049
$841
$1,737
$149,090
291
6/2049
$831
$1,747
$147,343
292
7/2049
$821
$1,757
$145,586
293
8/2049
$812
$1,767
$143,819
294
9/2049
$802
$1,777
$142,043
295
10/2049
$792
$1,786
$140,256
296
11/2049
$782
$1,796
$138,460
297
12/2049
$772
$1,806
$136,654
298
1/2050
$762
$1,816
$134,837
299
2/2050
$752
$1,827
$133,011
300
3/2050
$741
$1,837
$131,174
End of year 25
301
4/2050
$731
$1,847
$129,327
302
5/2050
$721
$1,857
$127,469
303
6/2050
$711
$1,868
$125,602
304
7/2050
$700
$1,878
$123,724
305
8/2050
$690
$1,889
$121,835
306
9/2050
$679
$1,899
$119,936
307
10/2050
$669
$1,910
$118,026
308
11/2050
$658
$1,920
$116,106
309
12/2050
$647
$1,931
$114,175
310
1/2051
$636
$1,942
$112,233
311
2/2051
$626
$1,953
$110,281
312
3/2051
$615
$1,963
$108,317
End of year 26
313
4/2051
$604
$1,974
$106,343
314
5/2051
$593
$1,985
$104,358
315
6/2051
$582
$1,996
$102,361
316
7/2051
$571
$2,008
$100,353
317
8/2051
$559
$2,019
$98,335
318
9/2051
$548
$2,030
$96,305
319
10/2051
$537
$2,041
$94,263
320
11/2051
$525
$2,053
$92,210
321
12/2051
$514
$2,064
$90,146
322
1/2052
$502
$2,076
$88,071
323
2/2052
$491
$2,087
$85,983
324
3/2052
$479
$2,099
$83,884
End of year 27
325
4/2052
$468
$2,111
$81,774
326
5/2052
$456
$2,122
$79,651
327
6/2052
$444
$2,134
$77,517
328
7/2052
$432
$2,146
$75,371
329
8/2052
$420
$2,158
$73,213
330
9/2052
$408
$2,170
$71,043
331
10/2052
$396
$2,182
$68,861
332
11/2052
$384
$2,194
$66,666
333
12/2052
$372
$2,207
$64,460
334
1/2053
$359
$2,219
$62,241
335
2/2053
$347
$2,231
$60,010
336
3/2053
$335
$2,244
$57,766
End of year 28
337
4/2053
$322
$2,256
$55,510
338
5/2053
$309
$2,269
$53,241
339
6/2053
$297
$2,281
$50,960
340
7/2053
$284
$2,294
$48,665
341
8/2053
$271
$2,307
$46,359
342
9/2053
$258
$2,320
$44,039
343
10/2053
$245
$2,333
$41,706
344
11/2053
$232
$2,346
$39,360
345
12/2053
$219
$2,359
$37,001
346
1/2054
$206
$2,372
$34,630
347
2/2054
$193
$2,385
$32,244
348
3/2054
$180
$2,398
$29,846
End of year 29
349
4/2054
$166
$2,412
$27,434
350
5/2054
$153
$2,425
$25,009
351
6/2054
$139
$2,439
$22,570
352
7/2054
$126
$2,452
$20,118
353
8/2054
$112
$2,466
$17,652
354
9/2054
$98
$2,480
$15,172
355
10/2054
$85
$2,494
$12,678
356
11/2054
$71
$2,508
$10,171
357
12/2054
$57
$2,522
$7,649
358
1/2055
$43
$2,536
$5,114
359
2/2055
$29
$2,550
$2,564
360
3/2055
$14
$2,564
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
4/25-3/26
$26,625
$4,313
$395,687
2
4/26-3/27
$26,328
$4,610
$391,077
3
4/27-3/28
$26,010
$4,928
$386,148
4
4/28-3/29
$25,670
$5,268
$380,880
5
4/29-3/30
$25,306
$5,632
$375,248
6
4/30-3/31
$24,918
$6,020
$369,227
7
4/31-3/32
$24,503
$6,436
$362,792
8
4/32-3/33
$24,059
$6,880
$355,912
9
4/33-3/34
$23,584
$7,354
$348,558
10
4/34-3/35
$23,077
$7,861
$340,697
11
4/35-3/36
$22,535
$8,404
$332,293
12
4/36-3/37
$21,955
$8,983
$323,310
13
4/37-3/38
$21,335
$9,603
$313,707
14
4/38-3/39
$20,673
$10,265
$303,441
15
4/39-3/40
$19,965
$10,974
$292,468
16
4/40-3/41
$19,208
$11,730
$280,737
17
4/41-3/42
$18,399
$12,540
$268,198
18
4/42-3/43
$17,534
$13,405
$254,793
19
4/43-3/44
$16,609
$14,329
$240,464
20
4/44-3/45
$15,621
$15,318
$225,146
21
4/45-3/46
$14,564
$16,374
$208,772
22
4/46-3/47
$13,435
$17,504
$191,268
23
4/47-3/48
$12,227
$18,711
$172,557
24
4/48-3/49
$10,937
$20,002
$152,555
25
4/49-3/50
$9,557
$21,382
$131,174
26
4/50-3/51
$8,082
$22,856
$108,317
27
4/51-3/52
$6,505
$24,433
$83,884
28
4/52-3/53
$4,820
$26,118
$57,766
29
4/53-3/54
$3,018
$27,920
$29,846
30
4/54-3/55
$1,092
$29,846
$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.