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: $2,589.61
Monthly
Total
Mortgage Payment
$2,589.61
$932,258.95
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
$3,714.61
$1,337,258.95
House Price
$500,000.00
Loan Amount
$400,000.00
Down Payment
$100,000.00
Total of 360 Mortgage Payments
$932,258.95
Total Interest
$532,258.95
Mortgage Payoff Date
Jul. 2055
Amortization schedule
Month
Date
Interest
Principal
Ending Balance
1
07/2025
$2,244
$346
$399,654
2
8/2025
$2,242
$348
$399,307
3
9/2025
$2,240
$349
$398,957
4
10/2025
$2,238
$351
$398,606
5
11/2025
$2,236
$353
$398,252
6
12/2025
$2,234
$355
$397,897
7
1/2026
$2,232
$357
$397,540
8
2/2026
$2,230
$359
$397,180
9
3/2026
$2,228
$361
$396,819
10
4/2026
$2,226
$363
$396,455
11
5/2026
$2,224
$365
$396,090
12
6/2026
$2,222
$368
$395,722
End of year 1
13
7/2026
$2,220
$370
$395,353
14
8/2026
$2,218
$372
$394,981
15
9/2026
$2,216
$374
$394,607
16
10/2026
$2,214
$376
$394,231
17
11/2026
$2,212
$378
$393,853
18
12/2026
$2,210
$380
$393,473
19
1/2027
$2,207
$382
$393,091
20
2/2027
$2,205
$384
$392,707
21
3/2027
$2,203
$387
$392,320
22
4/2027
$2,201
$389
$391,932
23
5/2027
$2,199
$391
$391,541
24
6/2027
$2,197
$393
$391,148
End of year 2
25
7/2027
$2,194
$395
$390,752
26
8/2027
$2,192
$397
$390,355
27
9/2027
$2,190
$400
$389,955
28
10/2027
$2,188
$402
$389,553
29
11/2027
$2,185
$404
$389,149
30
12/2027
$2,183
$406
$388,742
31
1/2028
$2,181
$409
$388,334
32
2/2028
$2,179
$411
$387,923
33
3/2028
$2,176
$413
$387,509
34
4/2028
$2,174
$416
$387,094
35
5/2028
$2,172
$418
$386,676
36
6/2028
$2,169
$420
$386,255
End of year 3
37
7/2028
$2,167
$423
$385,833
38
8/2028
$2,165
$425
$385,407
39
9/2028
$2,162
$427
$384,980
40
10/2028
$2,160
$430
$384,550
41
11/2028
$2,157
$432
$384,118
42
12/2028
$2,155
$435
$383,683
43
1/2029
$2,152
$437
$383,246
44
2/2029
$2,150
$440
$382,806
45
3/2029
$2,148
$442
$382,364
46
4/2029
$2,145
$445
$381,920
47
5/2029
$2,143
$447
$381,473
48
6/2029
$2,140
$450
$381,023
End of year 4
49
7/2029
$2,138
$452
$380,571
50
8/2029
$2,135
$455
$380,116
51
9/2029
$2,132
$457
$379,659
52
10/2029
$2,130
$460
$379,200
53
11/2029
$2,127
$462
$378,737
54
12/2029
$2,125
$465
$378,272
55
1/2030
$2,122
$467
$377,805
56
2/2030
$2,119
$470
$377,335
57
3/2030
$2,117
$473
$376,862
58
4/2030
$2,114
$475
$376,387
59
5/2030
$2,112
$478
$375,909
60
6/2030
$2,109
$481
$375,428
End of year 5
61
7/2030
$2,106
$483
$374,944
62
8/2030
$2,103
$486
$374,458
63
9/2030
$2,101
$489
$373,969
64
10/2030
$2,098
$492
$373,478
65
11/2030
$2,095
$494
$372,983
66
12/2030
$2,092
$497
$372,486
67
1/2031
$2,090
$500
$371,986
68
2/2031
$2,087
$503
$371,483
69
3/2031
$2,084
$506
$370,978
70
4/2031
$2,081
$508
$370,469
71
5/2031
$2,078
$511
$369,958
72
6/2031
$2,075
$514
$369,444
End of year 6
73
7/2031
$2,073
$517
$368,927
74
8/2031
$2,070
$520
$368,407
75
9/2031
$2,067
$523
$367,884
76
10/2031
$2,064
$526
$367,358
77
11/2031
$2,061
$529
$366,830
78
12/2031
$2,058
$532
$366,298
79
1/2032
$2,055
$535
$365,763
80
2/2032
$2,052
$538
$365,226
81
3/2032
$2,049
$541
$364,685
82
4/2032
$2,046
$544
$364,141
83
5/2032
$2,043
$547
$363,594
84
6/2032
$2,040
$550
$363,044
End of year 7
85
7/2032
$2,037
$553
$362,492
86
8/2032
$2,034
$556
$361,936
87
9/2032
$2,030
$559
$361,376
88
10/2032
$2,027
$562
$360,814
89
11/2032
$2,024
$565
$360,249
90
12/2032
$2,021
$569
$359,680
91
1/2033
$2,018
$572
$359,108
92
2/2033
$2,015
$575
$358,533
93
3/2033
$2,011
$578
$357,955
94
4/2033
$2,008
$581
$357,374
95
5/2033
$2,005
$585
$356,789
96
6/2033
$2,002
$588
$356,201
End of year 8
97
7/2033
$1,998
$591
$355,609
98
8/2033
$1,995
$595
$355,015
99
9/2033
$1,992
$598
$354,417
100
10/2033
$1,988
$601
$353,815
101
11/2033
$1,985
$605
$353,211
102
12/2033
$1,982
$608
$352,603
103
1/2034
$1,978
$612
$351,991
104
2/2034
$1,975
$615
$351,376
105
3/2034
$1,971
$618
$350,758
106
4/2034
$1,968
$622
$350,136
107
5/2034
$1,964
$625
$349,511
108
6/2034
$1,961
$629
$348,882
End of year 9
109
7/2034
$1,957
$632
$348,249
110
8/2034
$1,954
$636
$347,613
111
9/2034
$1,950
$639
$346,974
112
10/2034
$1,947
$643
$346,331
113
11/2034
$1,943
$647
$345,684
114
12/2034
$1,939
$650
$345,034
115
1/2035
$1,936
$654
$344,380
116
2/2035
$1,932
$658
$343,722
117
3/2035
$1,928
$661
$343,061
118
4/2035
$1,925
$665
$342,396
119
5/2035
$1,921
$669
$341,727
120
6/2035
$1,917
$673
$341,055
End of year 10
121
7/2035
$1,913
$676
$340,378
122
8/2035
$1,910
$680
$339,698
123
9/2035
$1,906
$684
$339,014
124
10/2035
$1,902
$688
$338,327
125
11/2035
$1,898
$692
$337,635
126
12/2035
$1,894
$695
$336,940
127
1/2036
$1,890
$699
$336,240
128
2/2036
$1,886
$703
$335,537
129
3/2036
$1,882
$707
$334,830
130
4/2036
$1,878
$711
$334,118
131
5/2036
$1,874
$715
$333,403
132
6/2036
$1,870
$719
$332,684
End of year 11
133
7/2036
$1,866
$723
$331,961
134
8/2036
$1,862
$727
$331,233
135
9/2036
$1,858
$731
$330,502
136
10/2036
$1,854
$735
$329,767
137
11/2036
$1,850
$740
$329,027
138
12/2036
$1,846
$744
$328,283
139
1/2037
$1,842
$748
$327,535
140
2/2037
$1,837
$752
$326,783
141
3/2037
$1,833
$756
$326,027
142
4/2037
$1,829
$761
$325,266
143
5/2037
$1,825
$765
$324,501
144
6/2037
$1,820
$769
$323,732
End of year 12
145
7/2037
$1,816
$773
$322,959
146
8/2037
$1,812
$778
$322,181
147
9/2037
$1,807
$782
$321,399
148
10/2037
$1,803
$787
$320,612
149
11/2037
$1,799
$791
$319,821
150
12/2037
$1,794
$795
$319,026
151
1/2038
$1,790
$800
$318,226
152
2/2038
$1,785
$804
$317,421
153
3/2038
$1,781
$809
$316,613
154
4/2038
$1,776
$813
$315,799
155
5/2038
$1,772
$818
$314,981
156
6/2038
$1,767
$823
$314,159
End of year 13
157
7/2038
$1,762
$827
$313,331
158
8/2038
$1,758
$832
$312,500
159
9/2038
$1,753
$836
$311,663
160
10/2038
$1,748
$841
$310,822
161
11/2038
$1,744
$846
$309,976
162
12/2038
$1,739
$851
$309,125
163
1/2039
$1,734
$855
$308,270
164
2/2039
$1,729
$860
$307,410
165
3/2039
$1,725
$865
$306,545
166
4/2039
$1,720
$870
$305,675
167
5/2039
$1,715
$875
$304,800
168
6/2039
$1,710
$880
$303,920
End of year 14
169
7/2039
$1,705
$885
$303,036
170
8/2039
$1,700
$890
$302,146
171
9/2039
$1,695
$895
$301,252
172
10/2039
$1,690
$900
$300,352
173
11/2039
$1,685
$905
$299,447
174
12/2039
$1,680
$910
$298,538
175
1/2040
$1,675
$915
$297,623
176
2/2040
$1,670
$920
$296,703
177
3/2040
$1,665
$925
$295,778
178
4/2040
$1,659
$930
$294,848
179
5/2040
$1,654
$936
$293,912
180
6/2040
$1,649
$941
$292,971
End of year 15
181
7/2040
$1,644
$946
$292,025
182
8/2040
$1,638
$951
$291,074
183
9/2040
$1,633
$957
$290,117
184
10/2040
$1,628
$962
$289,155
185
11/2040
$1,622
$967
$288,188
186
12/2040
$1,617
$973
$287,215
187
1/2041
$1,611
$978
$286,237
188
2/2041
$1,606
$984
$285,253
189
3/2041
$1,600
$989
$284,263
190
4/2041
$1,595
$995
$283,269
191
5/2041
$1,589
$1,000
$282,268
192
6/2041
$1,584
$1,006
$281,262
End of year 16
193
7/2041
$1,578
$1,012
$280,250
194
8/2041
$1,572
$1,017
$279,233
195
9/2041
$1,566
$1,023
$278,210
196
10/2041
$1,561
$1,029
$277,181
197
11/2041
$1,555
$1,035
$276,146
198
12/2041
$1,549
$1,040
$275,106
199
1/2042
$1,543
$1,046
$274,060
200
2/2042
$1,537
$1,052
$273,007
201
3/2042
$1,532
$1,058
$271,949
202
4/2042
$1,526
$1,064
$270,885
203
5/2042
$1,520
$1,070
$269,815
204
6/2042
$1,514
$1,076
$268,740
End of year 17
205
7/2042
$1,508
$1,082
$267,658
206
8/2042
$1,502
$1,088
$266,569
207
9/2042
$1,495
$1,094
$265,475
208
10/2042
$1,489
$1,100
$264,375
209
11/2042
$1,483
$1,106
$263,269
210
12/2042
$1,477
$1,113
$262,156
211
1/2043
$1,471
$1,119
$261,037
212
2/2043
$1,464
$1,125
$259,912
213
3/2043
$1,458
$1,132
$258,780
214
4/2043
$1,452
$1,138
$257,642
215
5/2043
$1,445
$1,144
$256,498
216
6/2043
$1,439
$1,151
$255,348
End of year 18
217
7/2043
$1,432
$1,157
$254,190
218
8/2043
$1,426
$1,164
$253,027
219
9/2043
$1,419
$1,170
$251,857
220
10/2043
$1,413
$1,177
$250,680
221
11/2043
$1,406
$1,183
$249,497
222
12/2043
$1,400
$1,190
$248,307
223
1/2044
$1,393
$1,197
$247,110
224
2/2044
$1,386
$1,203
$245,907
225
3/2044
$1,380
$1,210
$244,697
226
4/2044
$1,373
$1,217
$243,480
227
5/2044
$1,366
$1,224
$242,256
228
6/2044
$1,359
$1,231
$241,026
End of year 19
229
7/2044
$1,352
$1,237
$239,788
230
8/2044
$1,345
$1,244
$238,544
231
9/2044
$1,338
$1,251
$237,292
232
10/2044
$1,331
$1,258
$236,034
233
11/2044
$1,324
$1,265
$234,769
234
12/2044
$1,317
$1,273
$233,496
235
1/2045
$1,310
$1,280
$232,216
236
2/2045
$1,303
$1,287
$230,930
237
3/2045
$1,296
$1,294
$229,635
238
4/2045
$1,288
$1,301
$228,334
239
5/2045
$1,281
$1,309
$227,025
240
6/2045
$1,274
$1,316
$225,709
End of year 20
241
7/2045
$1,266
$1,323
$224,386
242
8/2045
$1,259
$1,331
$223,055
243
9/2045
$1,251
$1,338
$221,717
244
10/2045
$1,244
$1,346
$220,371
245
11/2045
$1,236
$1,353
$219,018
246
12/2045
$1,229
$1,361
$217,657
247
1/2046
$1,221
$1,369
$216,288
248
2/2046
$1,213
$1,376
$214,912
249
3/2046
$1,206
$1,384
$213,528
250
4/2046
$1,198
$1,392
$212,136
251
5/2046
$1,190
$1,400
$210,737
252
6/2046
$1,182
$1,407
$209,330
End of year 21
253
7/2046
$1,174
$1,415
$207,914
254
8/2046
$1,166
$1,423
$206,491
255
9/2046
$1,158
$1,431
$205,060
256
10/2046
$1,150
$1,439
$203,621
257
11/2046
$1,142
$1,447
$202,173
258
12/2046
$1,134
$1,455
$200,718
259
1/2047
$1,126
$1,464
$199,254
260
2/2047
$1,118
$1,472
$197,783
261
3/2047
$1,110
$1,480
$196,303
262
4/2047
$1,101
$1,488
$194,814
263
5/2047
$1,093
$1,497
$193,318
264
6/2047
$1,085
$1,505
$191,812
End of year 22
265
7/2047
$1,076
$1,514
$190,299
266
8/2047
$1,068
$1,522
$188,777
267
9/2047
$1,059
$1,531
$187,246
268
10/2047
$1,050
$1,539
$185,707
269
11/2047
$1,042
$1,548
$184,159
270
12/2047
$1,033
$1,556
$182,603
271
1/2048
$1,024
$1,565
$181,038
272
2/2048
$1,016
$1,574
$179,464
273
3/2048
$1,007
$1,583
$177,881
274
4/2048
$998
$1,592
$176,289
275
5/2048
$989
$1,601
$174,689
276
6/2048
$980
$1,610
$173,079
End of year 23
277
7/2048
$971
$1,619
$171,460
278
8/2048
$962
$1,628
$169,833
279
9/2048
$953
$1,637
$168,196
280
10/2048
$944
$1,646
$166,550
281
11/2048
$934
$1,655
$164,894
282
12/2048
$925
$1,665
$163,230
283
1/2049
$916
$1,674
$161,556
284
2/2049
$906
$1,683
$159,873
285
3/2049
$897
$1,693
$158,180
286
4/2049
$887
$1,702
$156,478
287
5/2049
$878
$1,712
$154,766
288
6/2049
$868
$1,721
$153,045
End of year 24
289
7/2049
$859
$1,731
$151,314
290
8/2049
$849
$1,741
$149,573
291
9/2049
$839
$1,751
$147,822
292
10/2049
$829
$1,760
$146,062
293
11/2049
$819
$1,770
$144,292
294
12/2049
$809
$1,780
$142,512
295
1/2050
$799
$1,790
$140,722
296
2/2050
$789
$1,800
$138,921
297
3/2050
$779
$1,810
$137,111
298
4/2050
$769
$1,820
$135,291
299
5/2050
$759
$1,831
$133,460
300
6/2050
$749
$1,841
$131,619
End of year 25
301
7/2050
$738
$1,851
$129,768
302
8/2050
$728
$1,862
$127,906
303
9/2050
$718
$1,872
$126,034
304
10/2050
$707
$1,883
$124,152
305
11/2050
$696
$1,893
$122,259
306
12/2050
$686
$1,904
$120,355
307
1/2051
$675
$1,914
$118,441
308
2/2051
$664
$1,925
$116,515
309
3/2051
$654
$1,936
$114,579
310
4/2051
$643
$1,947
$112,633
311
5/2051
$632
$1,958
$110,675
312
6/2051
$621
$1,969
$108,706
End of year 26
313
7/2051
$610
$1,980
$106,726
314
8/2051
$599
$1,991
$104,735
315
9/2051
$588
$2,002
$102,733
316
10/2051
$576
$2,013
$100,720
317
11/2051
$565
$2,025
$98,696
318
12/2051
$554
$2,036
$96,660
319
1/2052
$542
$2,047
$94,612
320
2/2052
$531
$2,059
$92,553
321
3/2052
$519
$2,070
$90,483
322
4/2052
$508
$2,082
$88,401
323
5/2052
$496
$2,094
$86,307
324
6/2052
$484
$2,105
$84,202
End of year 27
325
7/2052
$472
$2,117
$82,085
326
8/2052
$460
$2,129
$79,956
327
9/2052
$449
$2,141
$77,815
328
10/2052
$437
$2,153
$75,662
329
11/2052
$424
$2,165
$73,496
330
12/2052
$412
$2,177
$71,319
331
1/2053
$400
$2,190
$69,130
332
2/2053
$388
$2,202
$66,928
333
3/2053
$375
$2,214
$64,714
334
4/2053
$363
$2,227
$62,487
335
5/2053
$351
$2,239
$60,248
336
6/2053
$338
$2,252
$57,996
End of year 28
337
7/2053
$325
$2,264
$55,732
338
8/2053
$313
$2,277
$53,455
339
9/2053
$300
$2,290
$51,165
340
10/2053
$287
$2,303
$48,863
341
11/2053
$274
$2,315
$46,547
342
12/2053
$261
$2,328
$44,219
343
1/2054
$248
$2,342
$41,877
344
2/2054
$235
$2,355
$39,523
345
3/2054
$222
$2,368
$37,155
346
4/2054
$208
$2,381
$34,774
347
5/2054
$195
$2,395
$32,379
348
6/2054
$182
$2,408
$29,971
End of year 29
349
7/2054
$168
$2,421
$27,550
350
8/2054
$155
$2,435
$25,115
351
9/2054
$141
$2,449
$22,666
352
10/2054
$127
$2,462
$20,203
353
11/2054
$113
$2,476
$17,727
354
12/2054
$99
$2,490
$15,237
355
1/2055
$85
$2,504
$12,733
356
2/2055
$71
$2,518
$10,215
357
3/2055
$57
$2,532
$7,682
358
4/2055
$43
$2,547
$5,136
359
5/2055
$29
$2,561
$2,575
360
6/2055
$14
$2,575
$0
End of year 30
Year
Date
Interest
Principal
Ending Balance
1
7/25-6/26
$26,798
$4,278
$395,722
2
7/26-6/27
$26,501
$4,575
$391,148
3
7/27-6/28
$26,183
$4,892
$386,255
4
7/28-6/29
$25,843
$5,232
$381,023
5
7/29-6/30
$25,480
$5,595
$375,428
6
7/30-6/31
$25,091
$5,984
$369,444
7
7/31-6/32
$24,676
$6,399
$363,044
8
7/32-6/33
$24,232
$6,844
$356,201
9
7/33-6/34
$23,756
$7,319
$348,882
10
7/34-6/35
$23,248
$7,827
$341,055
11
7/35-6/36
$22,705
$8,371
$332,684
12
7/36-6/37
$22,123
$8,952
$323,732
13
7/37-6/38
$21,502
$9,573
$314,159
14
7/38-6/39
$20,837
$10,238
$303,920
15
7/39-6/40
$20,126
$10,949
$292,971
16
7/40-6/41
$19,366
$11,709
$281,262
17
7/41-6/42
$18,553
$12,522
$268,740
18
7/42-6/43
$17,683
$13,392
$255,348
19
7/43-6/44
$16,753
$14,322
$241,026
20
7/44-6/45
$15,759
$15,316
$225,709
21
7/45-6/46
$14,695
$16,380
$209,330
22
7/46-6/47
$13,558
$17,517
$191,812
23
7/47-6/48
$12,342
$18,734
$173,079
24
7/48-6/49
$11,041
$20,034
$153,045
25
7/49-6/50
$9,650
$21,425
$131,619
26
7/50-6/51
$8,162
$22,913
$108,706
27
7/51-6/52
$6,571
$24,504
$84,202
28
7/52-6/53
$4,870
$26,206
$57,996
29
7/53-6/54
$3,050
$28,025
$29,971
30
7/54-6/55
$1,104
$29,971
$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.