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: $2,586.95
Monthly
Total
Mortgage Payment
$2,586.95
$931,302.67
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
$3,711.95
$1,336,302.67
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$931,302.67
Total Interest
$531,302.67
Mortgage Payoff Date
Jun. 2055
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
06/2025
$2,241
$346
$399,654
2
7/2025
$2,239
$348
$399,305
3
8/2025
$2,237
$350
$398,955
4
9/2025
$2,235
$352
$398,603
5
10/2025
$2,233
$354
$398,249
6
11/2025
$2,231
$356
$397,893
7
12/2025
$2,229
$358
$397,535
8
1/2026
$2,227
$360
$397,175
9
2/2026
$2,225
$362
$396,813
10
3/2026
$2,223
$364
$396,449
11
4/2026
$2,221
$366
$396,082
12
5/2026
$2,219
$368
$395,714
End of year 1
13
6/2026
$2,217
$370
$395,344
14
7/2026
$2,215
$372
$394,971
15
8/2026
$2,212
$374
$394,597
16
9/2026
$2,210
$377
$394,220
17
10/2026
$2,208
$379
$393,842
18
11/2026
$2,206
$381
$393,461
19
12/2026
$2,204
$383
$393,078
20
1/2027
$2,202
$385
$392,693
21
2/2027
$2,200
$387
$392,306
22
3/2027
$2,198
$389
$391,916
23
4/2027
$2,195
$392
$391,525
24
5/2027
$2,193
$394
$391,131
End of year 2
25
6/2027
$2,191
$396
$390,735
26
7/2027
$2,189
$398
$390,337
27
8/2027
$2,187
$400
$389,937
28
9/2027
$2,184
$403
$389,534
29
10/2027
$2,182
$405
$389,129
30
11/2027
$2,180
$407
$388,722
31
12/2027
$2,177
$409
$388,312
32
1/2028
$2,175
$412
$387,901
33
2/2028
$2,173
$414
$387,487
34
3/2028
$2,171
$416
$387,070
35
4/2028
$2,168
$419
$386,651
36
5/2028
$2,166
$421
$386,230
End of year 3
37
6/2028
$2,164
$423
$385,807
38
7/2028
$2,161
$426
$385,381
39
8/2028
$2,159
$428
$384,953
40
9/2028
$2,156
$431
$384,522
41
10/2028
$2,154
$433
$384,089
42
11/2028
$2,152
$435
$383,654
43
12/2028
$2,149
$438
$383,216
44
1/2029
$2,147
$440
$382,776
45
2/2029
$2,144
$443
$382,333
46
3/2029
$2,142
$445
$381,888
47
4/2029
$2,139
$448
$381,440
48
5/2029
$2,137
$450
$380,990
End of year 4
49
6/2029
$2,134
$453
$380,537
50
7/2029
$2,132
$455
$380,082
51
8/2029
$2,129
$458
$379,624
52
9/2029
$2,127
$460
$379,163
53
10/2029
$2,124
$463
$378,700
54
11/2029
$2,121
$466
$378,235
55
12/2029
$2,119
$468
$377,767
56
1/2030
$2,116
$471
$377,296
57
2/2030
$2,113
$473
$376,822
58
3/2030
$2,111
$476
$376,346
59
4/2030
$2,108
$479
$375,867
60
5/2030
$2,105
$481
$375,386
End of year 5
61
6/2030
$2,103
$484
$374,902
62
7/2030
$2,100
$487
$374,415
63
8/2030
$2,097
$490
$373,925
64
9/2030
$2,095
$492
$373,433
65
10/2030
$2,092
$495
$372,938
66
11/2030
$2,089
$498
$372,440
67
12/2030
$2,086
$501
$371,939
68
1/2031
$2,083
$503
$371,436
69
2/2031
$2,081
$506
$370,930
70
3/2031
$2,078
$509
$370,420
71
4/2031
$2,075
$512
$369,908
72
5/2031
$2,072
$515
$369,394
End of year 6
73
6/2031
$2,069
$518
$368,876
74
7/2031
$2,066
$521
$368,355
75
8/2031
$2,063
$524
$367,832
76
9/2031
$2,060
$526
$367,305
77
10/2031
$2,058
$529
$366,776
78
11/2031
$2,055
$532
$366,243
79
12/2031
$2,052
$535
$365,708
80
1/2032
$2,049
$538
$365,170
81
2/2032
$2,046
$541
$364,628
82
3/2032
$2,043
$544
$364,084
83
4/2032
$2,039
$547
$363,536
84
5/2032
$2,036
$551
$362,986
End of year 7
85
6/2032
$2,033
$554
$362,432
86
7/2032
$2,030
$557
$361,875
87
8/2032
$2,027
$560
$361,316
88
9/2032
$2,024
$563
$360,753
89
10/2032
$2,021
$566
$360,187
90
11/2032
$2,018
$569
$359,617
91
12/2032
$2,014
$572
$359,045
92
1/2033
$2,011
$576
$358,469
93
2/2033
$2,008
$579
$357,890
94
3/2033
$2,005
$582
$357,308
95
4/2033
$2,002
$585
$356,722
96
5/2033
$1,998
$589
$356,134
End of year 8
97
6/2033
$1,995
$592
$355,542
98
7/2033
$1,992
$595
$354,946
99
8/2033
$1,988
$599
$354,348
100
9/2033
$1,985
$602
$353,746
101
10/2033
$1,982
$605
$353,140
102
11/2033
$1,978
$609
$352,532
103
12/2033
$1,975
$612
$351,919
104
1/2034
$1,971
$616
$351,304
105
2/2034
$1,968
$619
$350,685
106
3/2034
$1,964
$623
$350,062
107
4/2034
$1,961
$626
$349,436
108
5/2034
$1,957
$630
$348,807
End of year 9
109
6/2034
$1,954
$633
$348,174
110
7/2034
$1,950
$637
$347,537
111
8/2034
$1,947
$640
$346,897
112
9/2034
$1,943
$644
$346,253
113
10/2034
$1,940
$647
$345,606
114
11/2034
$1,936
$651
$344,955
115
12/2034
$1,932
$655
$344,300
116
1/2035
$1,929
$658
$343,642
117
2/2035
$1,925
$662
$342,980
118
3/2035
$1,921
$666
$342,314
119
4/2035
$1,918
$669
$341,645
120
5/2035
$1,914
$673
$340,972
End of year 10
121
6/2035
$1,910
$677
$340,295
122
7/2035
$1,906
$681
$339,614
123
8/2035
$1,902
$685
$338,929
124
9/2035
$1,899
$688
$338,241
125
10/2035
$1,895
$692
$337,549
126
11/2035
$1,891
$696
$336,853
127
12/2035
$1,887
$700
$336,153
128
1/2036
$1,883
$704
$335,449
129
2/2036
$1,879
$708
$334,741
130
3/2036
$1,875
$712
$334,029
131
4/2036
$1,871
$716
$333,313
132
5/2036
$1,867
$720
$332,593
End of year 11
133
6/2036
$1,863
$724
$331,869
134
7/2036
$1,859
$728
$331,141
135
8/2036
$1,855
$732
$330,409
136
9/2036
$1,851
$736
$329,673
137
10/2036
$1,847
$740
$328,933
138
11/2036
$1,843
$744
$328,189
139
12/2036
$1,838
$749
$327,440
140
1/2037
$1,834
$753
$326,687
141
2/2037
$1,830
$757
$325,930
142
3/2037
$1,826
$761
$325,169
143
4/2037
$1,821
$765
$324,404
144
5/2037
$1,817
$770
$323,634
End of year 12
145
6/2037
$1,813
$774
$322,860
146
7/2037
$1,809
$778
$322,082
147
8/2037
$1,804
$783
$321,299
148
9/2037
$1,800
$787
$320,512
149
10/2037
$1,795
$792
$319,720
150
11/2037
$1,791
$796
$318,924
151
12/2037
$1,787
$800
$318,124
152
1/2038
$1,782
$805
$317,319
153
2/2038
$1,778
$809
$316,509
154
3/2038
$1,773
$814
$315,695
155
4/2038
$1,768
$819
$314,877
156
5/2038
$1,764
$823
$314,054
End of year 13
157
6/2038
$1,759
$828
$313,226
158
7/2038
$1,755
$832
$312,394
159
8/2038
$1,750
$837
$311,557
160
9/2038
$1,745
$842
$310,715
161
10/2038
$1,741
$846
$309,868
162
11/2038
$1,736
$851
$309,017
163
12/2038
$1,731
$856
$308,161
164
1/2039
$1,726
$861
$307,301
165
2/2039
$1,721
$866
$306,435
166
3/2039
$1,717
$870
$305,565
167
4/2039
$1,712
$875
$304,689
168
5/2039
$1,707
$880
$303,809
End of year 14
169
6/2039
$1,702
$885
$302,924
170
7/2039
$1,697
$890
$302,034
171
8/2039
$1,692
$895
$301,139
172
9/2039
$1,687
$900
$300,239
173
10/2039
$1,682
$905
$299,334
174
11/2039
$1,677
$910
$298,424
175
12/2039
$1,672
$915
$297,508
176
1/2040
$1,667
$920
$296,588
177
2/2040
$1,661
$926
$295,662
178
3/2040
$1,656
$931
$294,732
179
4/2040
$1,651
$936
$293,796
180
5/2040
$1,646
$941
$292,854
End of year 15
181
6/2040
$1,640
$946
$291,908
182
7/2040
$1,635
$952
$290,956
183
8/2040
$1,630
$957
$289,999
184
9/2040
$1,624
$962
$289,037
185
10/2040
$1,619
$968
$288,069
186
11/2040
$1,614
$973
$287,095
187
12/2040
$1,608
$979
$286,117
188
1/2041
$1,603
$984
$285,132
189
2/2041
$1,597
$990
$284,143
190
3/2041
$1,592
$995
$283,147
191
4/2041
$1,586
$1,001
$282,147
192
5/2041
$1,580
$1,006
$281,140
End of year 16
193
6/2041
$1,575
$1,012
$280,128
194
7/2041
$1,569
$1,018
$279,110
195
8/2041
$1,563
$1,023
$278,087
196
9/2041
$1,558
$1,029
$277,058
197
10/2041
$1,552
$1,035
$276,023
198
11/2041
$1,546
$1,041
$274,982
199
12/2041
$1,540
$1,047
$273,935
200
1/2042
$1,534
$1,052
$272,883
201
2/2042
$1,529
$1,058
$271,824
202
3/2042
$1,523
$1,064
$270,760
203
4/2042
$1,517
$1,070
$269,690
204
5/2042
$1,511
$1,076
$268,614
End of year 17
205
6/2042
$1,505
$1,082
$267,531
206
7/2042
$1,499
$1,088
$266,443
207
8/2042
$1,493
$1,094
$265,349
208
9/2042
$1,486
$1,101
$264,248
209
10/2042
$1,480
$1,107
$263,141
210
11/2042
$1,474
$1,113
$262,028
211
12/2042
$1,468
$1,119
$260,909
212
1/2043
$1,462
$1,125
$259,784
213
2/2043
$1,455
$1,132
$258,652
214
3/2043
$1,449
$1,138
$257,514
215
4/2043
$1,443
$1,144
$256,370
216
5/2043
$1,436
$1,151
$255,219
End of year 18
217
6/2043
$1,430
$1,157
$254,061
218
7/2043
$1,423
$1,164
$252,898
219
8/2043
$1,417
$1,170
$251,727
220
9/2043
$1,410
$1,177
$250,550
221
10/2043
$1,404
$1,183
$249,367
222
11/2043
$1,397
$1,190
$248,177
223
12/2043
$1,390
$1,197
$246,980
224
1/2044
$1,384
$1,203
$245,777
225
2/2044
$1,377
$1,210
$244,567
226
3/2044
$1,370
$1,217
$243,350
227
4/2044
$1,363
$1,224
$242,126
228
5/2044
$1,356
$1,231
$240,895
End of year 19
229
6/2044
$1,349
$1,238
$239,658
230
7/2044
$1,342
$1,244
$238,413
231
8/2044
$1,336
$1,251
$237,162
232
9/2044
$1,329
$1,258
$235,903
233
10/2044
$1,321
$1,266
$234,638
234
11/2044
$1,314
$1,273
$233,365
235
12/2044
$1,307
$1,280
$232,085
236
1/2045
$1,300
$1,287
$230,799
237
2/2045
$1,293
$1,294
$229,504
238
3/2045
$1,286
$1,301
$228,203
239
4/2045
$1,278
$1,309
$226,894
240
5/2045
$1,271
$1,316
$225,579
End of year 20
241
6/2045
$1,264
$1,323
$224,255
242
7/2045
$1,256
$1,331
$222,924
243
8/2045
$1,249
$1,338
$221,586
244
9/2045
$1,241
$1,346
$220,241
245
10/2045
$1,234
$1,353
$218,887
246
11/2045
$1,226
$1,361
$217,526
247
12/2045
$1,219
$1,368
$216,158
248
1/2046
$1,211
$1,376
$214,782
249
2/2046
$1,203
$1,384
$213,398
250
3/2046
$1,195
$1,392
$212,007
251
4/2046
$1,188
$1,399
$210,607
252
5/2046
$1,180
$1,407
$209,200
End of year 21
253
6/2046
$1,172
$1,415
$207,785
254
7/2046
$1,164
$1,423
$206,362
255
8/2046
$1,156
$1,431
$204,931
256
9/2046
$1,148
$1,439
$203,492
257
10/2046
$1,140
$1,447
$202,045
258
11/2046
$1,132
$1,455
$200,590
259
12/2046
$1,124
$1,463
$199,126
260
1/2047
$1,115
$1,472
$197,655
261
2/2047
$1,107
$1,480
$196,175
262
3/2047
$1,099
$1,488
$194,687
263
4/2047
$1,091
$1,496
$193,191
264
5/2047
$1,082
$1,505
$191,686
End of year 22
265
6/2047
$1,074
$1,513
$190,173
266
7/2047
$1,065
$1,522
$188,651
267
8/2047
$1,057
$1,530
$187,121
268
9/2047
$1,048
$1,539
$185,582
269
10/2047
$1,040
$1,547
$184,035
270
11/2047
$1,031
$1,556
$182,479
271
12/2047
$1,022
$1,565
$180,914
272
1/2048
$1,013
$1,574
$179,340
273
2/2048
$1,005
$1,582
$177,758
274
3/2048
$996
$1,591
$176,167
275
4/2048
$987
$1,600
$174,567
276
5/2048
$978
$1,609
$172,958
End of year 23
277
6/2048
$969
$1,618
$171,339
278
7/2048
$960
$1,627
$169,712
279
8/2048
$951
$1,636
$168,076
280
9/2048
$942
$1,645
$166,431
281
10/2048
$932
$1,655
$164,776
282
11/2048
$923
$1,664
$163,112
283
12/2048
$914
$1,673
$161,439
284
1/2049
$904
$1,683
$159,756
285
2/2049
$895
$1,692
$158,064
286
3/2049
$885
$1,702
$156,363
287
4/2049
$876
$1,711
$154,651
288
5/2049
$866
$1,721
$152,931
End of year 24
289
6/2049
$857
$1,730
$151,201
290
7/2049
$847
$1,740
$149,461
291
8/2049
$837
$1,750
$147,711
292
9/2049
$827
$1,760
$145,951
293
10/2049
$818
$1,769
$144,182
294
11/2049
$808
$1,779
$142,403
295
12/2049
$798
$1,789
$140,613
296
1/2050
$788
$1,799
$138,814
297
2/2050
$778
$1,809
$137,005
298
3/2050
$767
$1,819
$135,185
299
4/2050
$757
$1,830
$133,356
300
5/2050
$747
$1,840
$131,516
End of year 25
301
6/2050
$737
$1,850
$129,665
302
7/2050
$726
$1,861
$127,805
303
8/2050
$716
$1,871
$125,934
304
9/2050
$705
$1,882
$124,052
305
10/2050
$695
$1,892
$122,160
306
11/2050
$684
$1,903
$120,258
307
12/2050
$674
$1,913
$118,344
308
1/2051
$663
$1,924
$116,420
309
2/2051
$652
$1,935
$114,485
310
3/2051
$641
$1,946
$112,540
311
4/2051
$630
$1,957
$110,583
312
5/2051
$619
$1,968
$108,616
End of year 26
313
6/2051
$608
$1,979
$106,637
314
7/2051
$597
$1,990
$104,648
315
8/2051
$586
$2,001
$102,647
316
9/2051
$575
$2,012
$100,635
317
10/2051
$564
$2,023
$98,612
318
11/2051
$552
$2,035
$96,577
319
12/2051
$541
$2,046
$94,531
320
1/2052
$530
$2,057
$92,474
321
2/2052
$518
$2,069
$90,405
322
3/2052
$506
$2,081
$88,324
323
4/2052
$495
$2,092
$86,232
324
5/2052
$483
$2,104
$84,128
End of year 27
325
6/2052
$471
$2,116
$82,012
326
7/2052
$459
$2,128
$79,885
327
8/2052
$447
$2,139
$77,745
328
9/2052
$436
$2,151
$75,594
329
10/2052
$423
$2,163
$73,430
330
11/2052
$411
$2,176
$71,255
331
12/2052
$399
$2,188
$69,067
332
1/2053
$387
$2,200
$66,867
333
2/2053
$375
$2,212
$64,655
334
3/2053
$362
$2,225
$62,430
335
4/2053
$350
$2,237
$60,193
336
5/2053
$337
$2,250
$57,943
End of year 28
337
6/2053
$325
$2,262
$55,680
338
7/2053
$312
$2,275
$53,405
339
8/2053
$299
$2,288
$51,118
340
9/2053
$286
$2,301
$48,817
341
10/2053
$273
$2,313
$46,503
342
11/2053
$260
$2,326
$44,177
343
12/2053
$247
$2,339
$41,838
344
1/2054
$234
$2,353
$39,485
345
2/2054
$221
$2,366
$37,119
346
3/2054
$208
$2,379
$34,740
347
4/2054
$195
$2,392
$32,348
348
5/2054
$181
$2,406
$29,942
End of year 29
349
6/2054
$168
$2,419
$27,523
350
7/2054
$154
$2,433
$25,090
351
8/2054
$141
$2,446
$22,644
352
9/2054
$127
$2,460
$20,184
353
10/2054
$113
$2,474
$17,710
354
11/2054
$99
$2,488
$15,222
355
12/2054
$85
$2,502
$12,720
356
1/2055
$71
$2,516
$10,205
357
2/2055
$57
$2,530
$7,675
358
3/2055
$43
$2,544
$5,131
359
4/2055
$29
$2,558
$2,573
360
5/2055
$14
$2,573
$-0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
6/25-5/26
$26,758
$4,286
$395,714
2
6/26-5/27
$26,460
$4,583
$391,131
3
6/27-5/28
$26,143
$4,901
$386,230
4
6/28-5/29
$25,803
$5,241
$380,990
5
6/29-5/30
$25,440
$5,604
$375,386
6
6/30-5/31
$25,051
$5,992
$369,394
7
6/31-5/32
$24,636
$6,408
$362,986
8
6/32-5/33
$24,191
$6,852
$356,134
9
6/33-5/34
$23,716
$7,327
$348,807
10
6/34-5/35
$23,208
$7,835
$340,972
11
6/35-5/36
$22,665
$8,378
$332,593
12
6/36-5/37
$22,084
$8,959
$323,634
13
6/37-5/38
$21,463
$9,580
$314,054
14
6/38-5/39
$20,799
$10,245
$303,809
15
6/39-5/40
$20,089
$10,955
$292,854
16
6/40-5/41
$19,329
$11,714
$281,140
17
6/41-5/42
$18,517
$12,526
$268,614
18
6/42-5/43
$17,649
$13,395
$255,219
19
6/43-5/44
$16,720
$14,324
$240,895
20
6/44-5/45
$15,727
$15,317
$225,579
21
6/45-5/46
$14,665
$16,379
$209,200
22
6/46-5/47
$13,529
$17,514
$191,686
23
6/47-5/48
$12,315
$18,728
$172,958
24
6/48-5/49
$11,017
$20,027
$152,931
25
6/49-5/50
$9,628
$21,415
$131,516
26
6/50-5/51
$8,143
$22,900
$108,616
27
6/51-5/52
$6,556
$24,488
$84,128
28
6/52-5/53
$4,858
$26,185
$57,943
29
6/53-5/54
$3,043
$28,001
$29,942
30
6/54-5/55
$1,101
$29,942
$-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.
