Make Extra Principal Payments and Payoff Your Mortgage Early
Our mortgage payoff calculator is made to show how you can payoff your home loan earlier, saving you time and money. It starts off with a basic amortization calculator, showing you the principal, interest and ending balance across your loan term. But then calculator adds extra payments to show how it changes the amortization schedule over time.
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What Can You Do With Your The Money You Save?
Why Should You Payoff Your Mortgage Early
Do you like having debt? Neither do we. We think the best thing you can do is payoff your debt as quickly as possible. And we have a few reasons why.
People say that when you rent you are throwing money down the drain. But interest is the rent you pay on borrowed money. So long as money is borrowed, you’re throwing it down the drain. Paying off your mortgage early can make for huge savings!
Unless You have A Low APY or a Great Investment
Everything comes with a grain of salt. And if you have an interest rate that is less than your return on investment, than you will want to consider a conventional payment plan. That is of course, unless you are risk averse.
Reduce Your Liabilities
Debt can be a burden, and you have to pay your mortgage regardless of your financial situation, and 30 years is a long time. The economy could crash, you could get laid off, or have another massive obligation. If you payoff your mortgage early, you remove that obligation from your life. That means fewer stress filled years, and a smaller probability that you will have to make some difficult choices.
What Should You Know About Paying Your Mortgage Early
There are some caveats you should know before you start making extra payments on your mortgage.
Not Every Payment Has To Be The Same
Our mortgage calculator is a little limited in that you have to pay the same amount every month throughout your mortgage. But you can choose to pay a more some months, and some months not at all.
Some banks charge a penalty when you pay more than the monthly payment. Always make sure that you don’t have to pay any additional fee before you you pay any extra payment. Also, if you’re getting a mortgage and plan on making extra payments, always ask your lender if there is a fee for extra payments, and when those fees might kick in.
What you Should Know Before You Make An Extra Payment
Always make sure you put a note in your check that you want your extra payment to go to your principal. Unless you note otherwise, a bank may choose to do something else with the money, such as put it towards next month’s interest. Or simple use it towards future payments.
ALWAYS GIVE DIRECTIONS OF WHAT TO DO WITH THE MONEY.
This is what it’s all about. Just because your property is worth 300k, doesn’t mean that when you sell it you’ll receive 300k. You will have to pay off the balance on your home loan. The equity on your home can be calculated fairly easily, taking the value of your real estate, and subtracting the remaining balance of your mortgage. By making extra monthly payments, you make sure your home equity is maximized at the time of sale. No matter when that is.
Everything You Need To Know About Planning Your Early Mortgage Payoff
You’ve read up to this point, you think it’s a good idea, but you’re still a little confused. So we break down every single part of a mortgage, and extra payments to make sure no stone is left unturned. If you have any questions, just look below to see how we make the calculator, definition of terms, and any other caveats we might have missed.
Our early payment calculator take in your mortgage term, the amount of your loan, and the current interest rates to develop your amortization schedule. This shows your monthly mortgage payment, and how much of it has gone towards interest and principal over the life of the loan, so you can better plan your personal finances.
Principal, simply put is the loan amount, usually about 80% of the home price. When you make a payment to the principal balance, you are lowering your the total balance you have left with the bank.
Interest rates are the cost of borrowing money over time. The interest is charged against the balance you have left over at the end of every month.
Banks often compete over charging the lowest possible rate, and can depend on your credit score. If you would like to see what the various lenders are charging, click here.
The term of the mortgage is the rules of which you agree to pay back your entire mortgage loan. The most common term in the United States is a 30-year fixed rate mortgage. The bank calculates how much you would have to pay every month to pay off your home in 30 years, assuming a fixed interest rate.
Adjustable Rate Mortgage
This is when the bank changes the interest rate according to market conditions. These usually offer lower introductory interest rates, because the borrower assumes the risk of a change in the market rate. These are usually available for a 30 year mortgage as well as a 15 year mortgage.
The monthly payment is created by calculating the total interest over the life of the mortgage, adding it to the principal and dividing that amount by the total number of months. Simple, right? Well, it gets a little more complicated. Because interest is calculated every month, it is based on the total principal you have left. so let’s say you borrowed $100. And you are paying 10% interest every month and your monthly payment is $20. The first month, the $10 would go to your principal and $10 would go to interest. However, now you only owe $90. And since 10% of $90 is only $9, you will now pay $9 toward interest and $11 toward your principal.
This is the amount of money you bring to the table. It’s possible to put as little as no money down, but this will only give you access to the highest interest rates. In general, it is recommended you put at least 20% down on your home, to get the best possible deal on your mortgage. This will give you access to both lower rates, and help you avoid PMI (more on this later).
Mortgage Calculator with Extra Payments
This is what makes this calculator so special. It is able to look at the amortization schedule, and accurately tell you how it will change by paying a little bit more every single month.
Extra Monthly Payments
An additional payment is the amount you pay over the standard payment that’s required monthly. What makes this so special is that since you already paid off all of the interest for that month in your monthly payment, everything extra you pay goes directly to the principal (see below). This means that not only do you have less to pay off, but the amount you have to pay toward your interest goes down EVERY MONTH after your payment.Giving you access to real interest savings.
Our tools shows you visually, exactly how much you can expect to save by increasing your mortgage payment.
Early Mortgage Payoff
If you make extra payments a regular part of your lifestyle you can successfully shave years and thousands of dollars off your mortgage. To use the example above, let’s say you choose to pay an additional $10 on your $100 loan every month. Now you have $10 going toward your interest, and $20 going to your principal. Now next month’s interest payment is only $8 and even without making an extra payment, you’re paying $12 towards your principal. Saving money on ALL future payments!
PMI, Taxes, HOA Fees and Other Expenses
Private Mortgage Insurance (PMI), property taxes and other expenses all play a roll when considering buying a piece of real estate. However, they are outside the scope of this calculator. If you want to see how they effect your home buying situation, check out PITI Calculator.
Calculating Mortgage Payoff
This tool was made in Tableau and uses your inputs to power the entire visualization. We applied your extra payment input to our amortization calculator, until the point that the ending balance was paid off. At which point we told Tableau that the mortgage was null. This creates the effect you see above where the early payment model abruptly ends, while the conventional model continues.
If you would like to talk more about data visualizations, feel free to contact us. We love to nerd out about this stuff.
What Did You Think About This Article
We are constantly developing new tools like our PITI Calculator. And we want to make them better. Let us know what you thought about our early mortgage calculator, so we can make your experience even better.