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: $2,590.14
Monthly
Total
Mortgage Payment
$2,590.14
$932,450.25
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
$3,715.14
$1,337,450.25
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$932,450.25
Total Interest
$532,450.25
Mortgage Payoff Date
May. 2055
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
05/2025
$2,245
$345
$399,655
2
6/2025
$2,243
$347
$399,307
3
7/2025
$2,241
$349
$398,958
4
8/2025
$2,239
$351
$398,606
5
9/2025
$2,237
$353
$398,253
6
10/2025
$2,235
$355
$397,898
7
11/2025
$2,233
$357
$397,541
8
12/2025
$2,231
$359
$397,181
9
1/2026
$2,229
$361
$396,820
10
2/2026
$2,227
$363
$396,457
11
3/2026
$2,225
$365
$396,091
12
4/2026
$2,223
$367
$395,724
End of year 1
13
5/2026
$2,221
$369
$395,354
14
6/2026
$2,219
$372
$394,983
15
7/2026
$2,217
$374
$394,609
16
8/2026
$2,214
$376
$394,234
17
9/2026
$2,212
$378
$393,856
18
10/2026
$2,210
$380
$393,476
19
11/2026
$2,208
$382
$393,094
20
12/2026
$2,206
$384
$392,709
21
1/2027
$2,204
$386
$392,323
22
2/2027
$2,202
$389
$391,935
23
3/2027
$2,199
$391
$391,544
24
4/2027
$2,197
$393
$391,151
End of year 2
25
5/2027
$2,195
$395
$390,756
26
6/2027
$2,193
$397
$390,358
27
7/2027
$2,191
$400
$389,959
28
8/2027
$2,188
$402
$389,557
29
9/2027
$2,186
$404
$389,153
30
10/2027
$2,184
$406
$388,747
31
11/2027
$2,182
$409
$388,338
32
12/2027
$2,179
$411
$387,927
33
1/2028
$2,177
$413
$387,514
34
2/2028
$2,175
$416
$387,098
35
3/2028
$2,172
$418
$386,680
36
4/2028
$2,170
$420
$386,260
End of year 3
37
5/2028
$2,168
$423
$385,838
38
6/2028
$2,165
$425
$385,413
39
7/2028
$2,163
$427
$384,985
40
8/2028
$2,160
$430
$384,556
41
9/2028
$2,158
$432
$384,123
42
10/2028
$2,156
$435
$383,689
43
11/2028
$2,153
$437
$383,252
44
12/2028
$2,151
$439
$382,812
45
1/2029
$2,148
$442
$382,371
46
2/2029
$2,146
$444
$381,926
47
3/2029
$2,143
$447
$381,479
48
4/2029
$2,141
$449
$381,030
End of year 4
49
5/2029
$2,138
$452
$380,578
50
6/2029
$2,136
$454
$380,123
51
7/2029
$2,133
$457
$379,666
52
8/2029
$2,131
$460
$379,207
53
9/2029
$2,128
$462
$378,745
54
10/2029
$2,125
$465
$378,280
55
11/2029
$2,123
$467
$377,813
56
12/2029
$2,120
$470
$377,343
57
1/2030
$2,118
$473
$376,870
58
2/2030
$2,115
$475
$376,395
59
3/2030
$2,112
$478
$375,917
60
4/2030
$2,110
$481
$375,436
End of year 5
61
5/2030
$2,107
$483
$374,953
62
6/2030
$2,104
$486
$374,467
63
7/2030
$2,101
$489
$373,978
64
8/2030
$2,099
$491
$373,487
65
9/2030
$2,096
$494
$372,992
66
10/2030
$2,093
$497
$372,495
67
11/2030
$2,090
$500
$371,995
68
12/2030
$2,088
$503
$371,493
69
1/2031
$2,085
$505
$370,987
70
2/2031
$2,082
$508
$370,479
71
3/2031
$2,079
$511
$369,968
72
4/2031
$2,076
$514
$369,454
End of year 6
73
5/2031
$2,073
$517
$368,937
74
6/2031
$2,070
$520
$368,417
75
7/2031
$2,067
$523
$367,895
76
8/2031
$2,065
$526
$367,369
77
9/2031
$2,062
$529
$366,840
78
10/2031
$2,059
$532
$366,309
79
11/2031
$2,056
$535
$365,774
80
12/2031
$2,053
$538
$365,237
81
1/2032
$2,050
$541
$364,696
82
2/2032
$2,047
$544
$364,153
83
3/2032
$2,044
$547
$363,606
84
4/2032
$2,040
$550
$363,056
End of year 7
85
5/2032
$2,037
$553
$362,503
86
6/2032
$2,034
$556
$361,948
87
7/2032
$2,031
$559
$361,389
88
8/2032
$2,028
$562
$360,826
89
9/2032
$2,025
$565
$360,261
90
10/2032
$2,022
$568
$359,693
91
11/2032
$2,018
$572
$359,121
92
12/2032
$2,015
$575
$358,546
93
1/2033
$2,012
$578
$357,968
94
2/2033
$2,009
$581
$357,387
95
3/2033
$2,006
$585
$356,802
96
4/2033
$2,002
$588
$356,214
End of year 8
97
5/2033
$1,999
$591
$355,623
98
6/2033
$1,996
$595
$355,028
99
7/2033
$1,992
$598
$354,431
100
8/2033
$1,989
$601
$353,829
101
9/2033
$1,986
$605
$353,225
102
10/2033
$1,982
$608
$352,617
103
11/2033
$1,979
$611
$352,006
104
12/2033
$1,975
$615
$351,391
105
1/2034
$1,972
$618
$350,772
106
2/2034
$1,968
$622
$350,151
107
3/2034
$1,965
$625
$349,526
108
4/2034
$1,961
$629
$348,897
End of year 9
109
5/2034
$1,958
$632
$348,265
110
6/2034
$1,954
$636
$347,629
111
7/2034
$1,951
$639
$346,989
112
8/2034
$1,947
$643
$346,346
113
9/2034
$1,944
$647
$345,700
114
10/2034
$1,940
$650
$345,050
115
11/2034
$1,936
$654
$344,396
116
12/2034
$1,933
$658
$343,738
117
1/2035
$1,929
$661
$343,077
118
2/2035
$1,925
$665
$342,412
119
3/2035
$1,922
$669
$341,744
120
4/2035
$1,918
$672
$341,071
End of year 10
121
5/2035
$1,914
$676
$340,395
122
6/2035
$1,910
$680
$339,715
123
7/2035
$1,906
$684
$339,031
124
8/2035
$1,903
$688
$338,344
125
9/2035
$1,899
$691
$337,652
126
10/2035
$1,895
$695
$336,957
127
11/2035
$1,891
$699
$336,258
128
12/2035
$1,887
$703
$335,555
129
1/2036
$1,883
$707
$334,847
130
2/2036
$1,879
$711
$334,136
131
3/2036
$1,875
$715
$333,421
132
4/2036
$1,871
$719
$332,702
End of year 11
133
5/2036
$1,867
$723
$331,979
134
6/2036
$1,863
$727
$331,252
135
7/2036
$1,859
$731
$330,521
136
8/2036
$1,855
$735
$329,785
137
9/2036
$1,851
$739
$329,046
138
10/2036
$1,846
$744
$328,302
139
11/2036
$1,842
$748
$327,554
140
12/2036
$1,838
$752
$326,802
141
1/2037
$1,834
$756
$326,046
142
2/2037
$1,830
$760
$325,286
143
3/2037
$1,825
$765
$324,521
144
4/2037
$1,821
$769
$323,752
End of year 12
145
5/2037
$1,817
$773
$322,978
146
6/2037
$1,812
$778
$322,201
147
7/2037
$1,808
$782
$321,419
148
8/2037
$1,804
$786
$320,632
149
9/2037
$1,799
$791
$319,841
150
10/2037
$1,795
$795
$319,046
151
11/2037
$1,790
$800
$318,246
152
12/2037
$1,786
$804
$317,442
153
1/2038
$1,781
$809
$316,633
154
2/2038
$1,777
$813
$315,820
155
3/2038
$1,772
$818
$315,002
156
4/2038
$1,768
$822
$314,180
End of year 13
157
5/2038
$1,763
$827
$313,353
158
6/2038
$1,758
$832
$312,521
159
7/2038
$1,754
$836
$311,684
160
8/2038
$1,749
$841
$310,843
161
9/2038
$1,744
$846
$309,998
162
10/2038
$1,740
$851
$309,147
163
11/2038
$1,735
$855
$308,292
164
12/2038
$1,730
$860
$307,432
165
1/2039
$1,725
$865
$306,567
166
2/2039
$1,720
$870
$305,697
167
3/2039
$1,715
$875
$304,822
168
4/2039
$1,711
$880
$303,943
End of year 14
169
5/2039
$1,706
$885
$303,058
170
6/2039
$1,701
$889
$302,169
171
7/2039
$1,696
$894
$301,274
172
8/2039
$1,691
$899
$300,375
173
9/2039
$1,686
$905
$299,470
174
10/2039
$1,681
$910
$298,561
175
11/2039
$1,675
$915
$297,646
176
12/2039
$1,670
$920
$296,726
177
1/2040
$1,665
$925
$295,801
178
2/2040
$1,660
$930
$294,871
179
3/2040
$1,655
$935
$293,935
180
4/2040
$1,649
$941
$292,995
End of year 15
181
5/2040
$1,644
$946
$292,049
182
6/2040
$1,639
$951
$291,098
183
7/2040
$1,634
$957
$290,141
184
8/2040
$1,628
$962
$289,179
185
9/2040
$1,623
$967
$288,212
186
10/2040
$1,617
$973
$287,239
187
11/2040
$1,612
$978
$286,261
188
12/2040
$1,606
$984
$285,277
189
1/2041
$1,601
$989
$284,288
190
2/2041
$1,595
$995
$283,293
191
3/2041
$1,590
$1,000
$282,292
192
4/2041
$1,584
$1,006
$281,286
End of year 16
193
5/2041
$1,578
$1,012
$280,275
194
6/2041
$1,573
$1,017
$279,257
195
7/2041
$1,567
$1,023
$278,234
196
8/2041
$1,561
$1,029
$277,206
197
9/2041
$1,556
$1,035
$276,171
198
10/2041
$1,550
$1,040
$275,131
199
11/2041
$1,544
$1,046
$274,084
200
12/2041
$1,538
$1,052
$273,032
201
1/2042
$1,532
$1,058
$271,974
202
2/2042
$1,526
$1,064
$270,910
203
3/2042
$1,520
$1,070
$269,841
204
4/2042
$1,514
$1,076
$268,765
End of year 17
205
5/2042
$1,508
$1,082
$267,683
206
6/2042
$1,502
$1,088
$266,595
207
7/2042
$1,496
$1,094
$265,501
208
8/2042
$1,490
$1,100
$264,400
209
9/2042
$1,484
$1,106
$263,294
210
10/2042
$1,478
$1,113
$262,181
211
11/2042
$1,471
$1,119
$261,063
212
12/2042
$1,465
$1,125
$259,937
213
1/2043
$1,459
$1,131
$258,806
214
2/2043
$1,452
$1,138
$257,668
215
3/2043
$1,446
$1,144
$256,524
216
4/2043
$1,440
$1,151
$255,373
End of year 18
217
5/2043
$1,433
$1,157
$254,216
218
6/2043
$1,427
$1,164
$253,053
219
7/2043
$1,420
$1,170
$251,883
220
8/2043
$1,413
$1,177
$250,706
221
9/2043
$1,407
$1,183
$249,523
222
10/2043
$1,400
$1,190
$248,333
223
11/2043
$1,394
$1,197
$247,136
224
12/2043
$1,387
$1,203
$245,933
225
1/2044
$1,380
$1,210
$244,723
226
2/2044
$1,373
$1,217
$243,506
227
3/2044
$1,366
$1,224
$242,282
228
4/2044
$1,360
$1,231
$241,052
End of year 19
229
5/2044
$1,353
$1,237
$239,814
230
6/2044
$1,346
$1,244
$238,570
231
7/2044
$1,339
$1,251
$237,319
232
8/2044
$1,332
$1,258
$236,060
233
9/2044
$1,325
$1,265
$234,795
234
10/2044
$1,318
$1,273
$233,522
235
11/2044
$1,310
$1,280
$232,243
236
12/2044
$1,303
$1,287
$230,956
237
1/2045
$1,296
$1,294
$229,662
238
2/2045
$1,289
$1,301
$228,360
239
3/2045
$1,281
$1,309
$227,052
240
4/2045
$1,274
$1,316
$225,736
End of year 20
241
5/2045
$1,267
$1,323
$224,412
242
6/2045
$1,259
$1,331
$223,081
243
7/2045
$1,252
$1,338
$221,743
244
8/2045
$1,244
$1,346
$220,397
245
9/2045
$1,237
$1,353
$219,044
246
10/2045
$1,229
$1,361
$217,683
247
11/2045
$1,222
$1,369
$216,314
248
12/2045
$1,214
$1,376
$214,938
249
1/2046
$1,206
$1,384
$213,554
250
2/2046
$1,198
$1,392
$212,162
251
3/2046
$1,191
$1,400
$210,763
252
4/2046
$1,183
$1,407
$209,356
End of year 21
253
5/2046
$1,175
$1,415
$207,940
254
6/2046
$1,167
$1,423
$206,517
255
7/2046
$1,159
$1,431
$205,086
256
8/2046
$1,151
$1,439
$203,646
257
9/2046
$1,143
$1,447
$202,199
258
10/2046
$1,135
$1,455
$200,744
259
11/2046
$1,127
$1,464
$199,280
260
12/2046
$1,118
$1,472
$197,808
261
1/2047
$1,110
$1,480
$196,328
262
2/2047
$1,102
$1,488
$194,840
263
3/2047
$1,093
$1,497
$193,343
264
4/2047
$1,085
$1,505
$191,838
End of year 22
265
5/2047
$1,077
$1,514
$190,324
266
6/2047
$1,068
$1,522
$188,802
267
7/2047
$1,059
$1,531
$187,271
268
8/2047
$1,051
$1,539
$185,732
269
9/2047
$1,042
$1,548
$184,184
270
10/2047
$1,034
$1,557
$182,628
271
11/2047
$1,025
$1,565
$181,062
272
12/2047
$1,016
$1,574
$179,488
273
1/2048
$1,007
$1,583
$177,905
274
2/2048
$998
$1,592
$176,314
275
3/2048
$989
$1,601
$174,713
276
4/2048
$980
$1,610
$173,103
End of year 23
277
5/2048
$971
$1,619
$171,484
278
6/2048
$962
$1,628
$169,857
279
7/2048
$953
$1,637
$168,220
280
8/2048
$944
$1,646
$166,574
281
9/2048
$935
$1,655
$164,918
282
10/2048
$925
$1,665
$163,253
283
11/2048
$916
$1,674
$161,579
284
12/2048
$907
$1,683
$159,896
285
1/2049
$897
$1,693
$158,203
286
2/2049
$888
$1,702
$156,501
287
3/2049
$878
$1,712
$154,789
288
4/2049
$869
$1,722
$153,067
End of year 24
289
5/2049
$859
$1,731
$151,336
290
6/2049
$849
$1,741
$149,595
291
7/2049
$839
$1,751
$147,845
292
8/2049
$830
$1,760
$146,084
293
9/2049
$820
$1,770
$144,314
294
10/2049
$810
$1,780
$142,534
295
11/2049
$800
$1,790
$140,743
296
12/2049
$790
$1,800
$138,943
297
1/2050
$780
$1,810
$137,132
298
2/2050
$770
$1,821
$135,312
299
3/2050
$759
$1,831
$133,481
300
4/2050
$749
$1,841
$131,640
End of year 25
301
5/2050
$739
$1,851
$129,789
302
6/2050
$728
$1,862
$127,927
303
7/2050
$718
$1,872
$126,054
304
8/2050
$707
$1,883
$124,172
305
9/2050
$697
$1,893
$122,278
306
10/2050
$686
$1,904
$120,374
307
11/2050
$676
$1,915
$118,460
308
12/2050
$665
$1,925
$116,534
309
1/2051
$654
$1,936
$114,598
310
2/2051
$643
$1,947
$112,651
311
3/2051
$632
$1,958
$110,693
312
4/2051
$621
$1,969
$108,724
End of year 26
313
5/2051
$610
$1,980
$106,744
314
6/2051
$599
$1,991
$104,753
315
7/2051
$588
$2,002
$102,751
316
8/2051
$577
$2,014
$100,737
317
9/2051
$565
$2,025
$98,712
318
10/2051
$554
$2,036
$96,676
319
11/2051
$543
$2,048
$94,629
320
12/2051
$531
$2,059
$92,569
321
1/2052
$519
$2,071
$90,499
322
2/2052
$508
$2,082
$88,416
323
3/2052
$496
$2,094
$86,323
324
4/2052
$484
$2,106
$84,217
End of year 27
325
5/2052
$473
$2,118
$82,099
326
6/2052
$461
$2,129
$79,970
327
7/2052
$449
$2,141
$77,828
328
8/2052
$437
$2,153
$75,675
329
9/2052
$425
$2,165
$73,510
330
10/2052
$413
$2,178
$71,332
331
11/2052
$400
$2,190
$69,142
332
12/2052
$388
$2,202
$66,940
333
1/2053
$376
$2,214
$64,725
334
2/2053
$363
$2,227
$62,499
335
3/2053
$351
$2,239
$60,259
336
4/2053
$338
$2,252
$58,007
End of year 28
337
5/2053
$326
$2,265
$55,743
338
6/2053
$313
$2,277
$53,465
339
7/2053
$300
$2,290
$51,175
340
8/2053
$287
$2,303
$48,872
341
9/2053
$274
$2,316
$46,556
342
10/2053
$261
$2,329
$44,227
343
11/2053
$248
$2,342
$41,885
344
12/2053
$235
$2,355
$39,530
345
1/2054
$222
$2,368
$37,162
346
2/2054
$209
$2,382
$34,780
347
3/2054
$195
$2,395
$32,385
348
4/2054
$182
$2,408
$29,977
End of year 29
349
5/2054
$168
$2,422
$27,555
350
6/2054
$155
$2,436
$25,120
351
7/2054
$141
$2,449
$22,670
352
8/2054
$127
$2,463
$20,207
353
9/2054
$113
$2,477
$17,731
354
10/2054
$99
$2,491
$15,240
355
11/2054
$86
$2,505
$12,735
356
12/2054
$71
$2,519
$10,217
357
1/2055
$57
$2,533
$7,684
358
2/2055
$43
$2,547
$5,137
359
3/2055
$29
$2,561
$2,576
360
4/2055
$14
$2,576
$-0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
5/25-4/26
$26,806
$4,276
$395,724
2
5/26-4/27
$26,509
$4,573
$391,151
3
5/27-4/28
$26,191
$4,891
$386,260
4
5/28-4/29
$25,851
$5,230
$381,030
5
5/29-4/30
$25,488
$5,594
$375,436
6
5/30-4/31
$25,099
$5,982
$369,454
7
5/31-4/32
$24,684
$6,398
$363,056
8
5/32-4/33
$24,240
$6,842
$356,214
9
5/33-4/34
$23,764
$7,317
$348,897
10
5/34-4/35
$23,256
$7,826
$341,071
11
5/35-4/36
$22,713
$8,369
$332,702
12
5/36-4/37
$22,131
$8,950
$323,752
13
5/37-4/38
$21,510
$9,572
$314,180
14
5/38-4/39
$20,845
$10,237
$303,943
15
5/39-4/40
$20,134
$10,948
$292,995
16
5/40-4/41
$19,373
$11,708
$281,286
17
5/41-4/42
$18,560
$12,522
$268,765
18
5/42-4/43
$17,690
$13,391
$255,373
19
5/43-4/44
$16,760
$14,321
$241,052
20
5/44-4/45
$15,765
$15,316
$225,736
21
5/45-4/46
$14,702
$16,380
$209,356
22
5/46-4/47
$13,564
$17,518
$191,838
23
5/47-4/48
$12,347
$18,735
$173,103
24
5/48-4/49
$11,046
$20,036
$153,067
25
5/49-4/50
$9,654
$21,427
$131,640
26
5/50-4/51
$8,166
$22,916
$108,724
27
5/51-4/52
$6,574
$24,507
$84,217
28
5/52-4/53
$4,872
$26,210
$58,007
29
5/53-4/54
$3,052
$28,030
$29,977
30
5/54-4/55
$1,105
$29,977
$-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.
