This mortgage payoff calculator estimates how long it will take to pay out your loan with or without an extra payment and how much interest you can save by paying early. Everything there is to know on this subject is explained below the form.

Current loan balance: *
\$
Interest rate: *
%
Current monthly payment: *
\$
\$

## How does this mortgage payoff calculator work?

This application is designed to help you simulate and compare between paying extra versus paying as agreed with the lender. The values to be given within this form are:

• Current loan balance meaning the principal to be paid. For instance if your initial mortgage amount was \$100,000 from which you have already paid \$5000, then the balance is \$95,000.
• Interest rate meaning the cost of the money expressed by an annual percentage.
• Current monthly payment meaning the regular monthly mortgage payment.
• Additional/extra monthly payment meaning the amount of money you can afford to pay extra on a monthly.

The algorithm uses the compound interest formula to generate two tables with the two scenarios and their structure explained below with an example.

## Example of a result

An individual that owe a principal of \$100,000 at an 3.5% interest rate, with a current level of monthly payment of \$1,000 wants to know what happens by paying an extra amount of \$500. This mortgage payoff calculator will display the tables with the structure and values shown below plus a conclusion based on the comparison between the 2 scenarios:

 Payoff WITHOUT an Additional/Extra Monthly Principal Payment Monthly payment amount \$1,000.00 Remaining payments 118.40 Time to payoff 9 years & 10 months Total interest paid \$18,403.36 Total paid for the mortgage \$118,403.36
 Payoff WITH an Additional/Extra Monthly Principal Payment Additional monthly payment to principal \$500.00 Adjusted monthly payment amount \$1,500.00 Remaining payments 74.24 Time to payoff 6 years & 2 months Total interest paid \$11,362.54 Total paid for the mortgage \$111,362.54
 Savings made by adding extra monthly payment to principal \$7,040.82 By paying early you will make fewer payments in a number of 44.16 payments

## Should you pay off your mortgage early?

Some financial advisors argue that there is no major advantage in paying off your mortgage early, while others believe it is always a good approach in such unstable economic environment. The decision is yours but we help you with a short question list you should look at in such a way to make your decision easier.

### Is the mortgage the single debt you have or there are other amount you owe at higher interest rates?

This is a critical question you should clarify, as from financial point of view you are advised to firstly pay early in advance a debt that has the highest interest rate. For instance if you should pay off your credit card balance do it instead of starting adding extra payments to your mortgage.

### Are there any money you are advised to put aside to secure a safer life (e.g: retirement plan, your kids school, you health improvement)?

Instead of paying early there may be some reasons you would prefer saving some money rather than paying early your mortgage, as future may prove these resources may help you better deal with life.

### What would happen with you family in case of your death? Will they manage without you?

This is a special side you should have in mind in case you have some dependants, as a life assurance cost is in many cases relatively low but it may prove a secure approach rather than trying to pay early your mortgage.

### Is the savings rate higher than the interest rate of your mortgage?

From financial point of view this is a critical aspect as this may lead you in making some savings in interest over medium to long term. This may be estimated by taking account the interest you can get for instance in a pension scheme account versus the savings in interest you can make by paying early.

Either if these questions are answered or not, this mortgage payoff calculator can help you in forecasting the savings you can make by paying early then by simply using this interest calculator you can make a comparison between your account's growth vs. overpay scenario in order to see whether this is a good or bad decision.

## Other things to consider when paying early your mortgage

• Check in your mortgage deal contract whether you have to pay or not some charges or fees in case of overpaying your principal. In many cases lenders allow debtors overpay up to 10% a year without penalties.
• Ensure you have enough resources for the coming up to 3 months apart from the amount you intent to overpay.
• Discuss with a financial advisor and try to assess what will happen with the interest rates in the future (both savings interest rate and mortgage quotes).

26 Dec, 2014 | 0 comments