Mortgage Payment Calculator (2023)

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Related

mortgage calculator|refinance calculator|loan calculator

The mortgage payment calculator above helps you evaluate different mortgage payment options, including additional one-time or recurring payments, bi-weekly payments, or full mortgage payment. Calculate the remaining time to pay, the difference in payment time, and the interest savings for different payment options.

Principal and interest of a mortgage

A typical loan payment consists of two parts, principal and interest. Principal is the amount borrowed, while interest is the lender's charges for lending the money. This interest rate is normally a percentage of the outstanding principal. A typical home loan repayment schedule will contain interest and principal.

Each payment will first cover the interest and the rest will be allocated to the principal. Since the full principal balance owed requires higher interest rates, a more significant portion of the payment will initially go toward interest. However, as the outstanding principal decreases, interest costs will subsequently fall. Thus, with each successive payment, the portion earmarked for interest decreases while the principal amount paid increases.

The mortgage payment calculator and accompanying amortization table illustrate this accurately. Once the user enters the required information, the Mortgage Payment Calculator will calculate the relevant data.

In addition to selling the home to pay off the mortgage, some borrowers may want to pay off the mortgage early to save on interest. Here are some strategies that can be employed to pay off your mortgage early:

extra payments

Additional payments are additional payments beyond the scheduled mortgage payments. Borrowers can make these payments one time or during a specific period, such as monthly or yearly.

Additional payments can drastically reduce your overall interest costs. For example, an additional one-time payment of $1,000 on a $200,000 30-year loan at 5% interest can pay off the loan four months early, saving $3,420 in interest. For the same loan of $200,000, 30 years, 5% interest, an additional $6 monthly payments will pay off the loan four payments sooner, saving $2,796 in interest.

biweekly payments

Another strategy to pay off your mortgage early involves biweekly payments. This means paying half your regular mortgage payment every two weeks. With 52 weeks in a year, this approach results in 26 paid media. Therefore, borrowers make the equivalent of 13 full monthly payments at the end of the year, or one additional month of payments each year. The biweekly payment option is suitable for those who receive a paycheck every two weeks. In such cases, borrowers can allocate a certain amount from each paycheck to the mortgage payment.

Refinance for a shorter term

Another option is to refinance or take out a new mortgage to pay off an old loan. For example, a borrower has a mortgage at a 5% interest rate with $200,000 and 20 years remaining. If that borrower can refinance a new 20-year loan with the same principal at a 4% interest rate, the monthly payment will be reduced by $107.95 from $1,319.91 to $1,211.96 per month. Total interest savings will be $25,908.20 over the life of the loan.

Borrowers can refinance for a shorter or longer term. Short-term loans generally come with lower interest rates. However, they often have to pay closing costs and fees to refinance. Borrowers must complete a comprehensive evaluation to decide if refinancing is financially beneficial. To evaluate refinancing options, visit ourrefinance calculator.

prepayment penalties

Some lenders may charge a prepayment penalty if the borrower prepays the loan. From the lender's point of view, mortgages are profitable investments that generate years of income, and the last thing they want is for their money-making machines to be compromised.

Lenders use several methods to calculate prepayment penalties. Potential penalties include charging 80% of the interest the lender would charge for the next six months. A creditor can also add a percentage of the outstanding balance. These fines can add up to huge fees, especially during the early stages of a mortgage.

However, prepayment penalties have become less common. If the lender includes these possible fees in a mortgage document, they will generally become void after a certain period of time, such as after the fifth year. Borrowers should read the fine print or ask the lender to clearly understand how prepayment penalties apply to their loan. FHA loans, VA loans, or any loan guaranteed by federally accredited credit unions prohibit prepayment penalties.

opportunity costs

Borrowers who want to pay off their mortgages sooner must consider the opportunity costs or benefits they might have enjoyed if they had chosen an alternative. Financial opportunity costs exist for every dollar spent for a specific purpose.

A home mortgage is a type of loan with a relatively low interest rate, and many view mortgage prepayments as the equivalent of a low-risk, low-return investment. For this reason, borrowers should consider paying off high-interest obligations, like credit cards, or smaller debts, like student or car loans, before supplementing a mortgage with additional payments.

In addition, other investments can produce returns that are higher than the interest rate on the mortgage. No one can predict the future direction of the market, but some of these alternative investments can generate returns that are higher than the savings from paying a mortgage. In the long run, it would make more financial sense for a person to put a certain amount of money into a portfolio of stocks that earn 10% in a year, instead of their existing mortgage at 4% interest rate. Corporate bonds, physical gold, and many other investments are options that mortgage holders can consider in lieu of additional payments.

In addition, since most borrowers also need to save for retirement, they should also consider contributing to tax-advantaged accounts like an IRA, Roth IRA, or 401k before making additional mortgage payments. In this way, they can not only earn higher returns, but also benefit from significant tax savings.

examples

In the end, it's up to individuals to evaluate their unique situations to determine if it makes more financial sense to increase their monthly mortgage payments. Here are some examples:

Example 1:Christine wanted the happy feeling that comes with owning a beautiful home. After confirming that she would not face prepayment penalties, she decided to supplement her mortgage with additional payments to speed up the payment.

One day Christine had lunch with a friend who works as a financial consultant. Her friend explained that she could eliminate more interest charges by paying off the high-interest debt on all three of her credit cards. Some of the cards charged commissions of up to 20%, while the mortgage only charged 5% interest. These payments have consumed an unnecessarily large amount of her income. By paying off these high-interest debts first, Christine reduces interest costs more quickly.

Example 2:Bob has no debt except the mortgage on his family's home. Student loans, car loans, and credit card loans are a thing of the past. With his discretionary income, he can't decide whether to make extra payments on his mortgage or invest in the stock market. Over time, the market generated returns that were higher than the 4% interest rate attached to his mortgage.

Bob can also choose to put more money into his emergency fund, which is almost empty. One crucial detail that his financial advisor mentioned is that Bob's company has recently laid off employees. His manager even warned Bob that he might be next in line.

In this situation, Bob must build an emergency fund before investing in the market or making additional mortgage payments.

Example 3:Charles has no debt other than the mortgage on his house. He has a steady job where he maxed out his tax bills, built a healthy six-month emergency fund, and saved extra money. Charles is only a few years away from retirement. Therefore, he does not want to make relatively riskier investments, such as buying individual stocks. In this situation, Charles' financial advisor recommends paying off his mortgage early to save on mortgage interest. That way, he can start his retirement with a fully paid-up house.