Home Loan Mortgagers :: Mortgage Payment Calculations
Mortgage Payment Calculations: How Pre-Payment Calculations Can Reduce Your Mortgage
Once you're done your mortgage payment calculations to find out how much your mortgage will cost you in interest, follow those calculations by adding in an extra $50 per month. You'll quickly realize that an extra $50 in prepayments each month on a $400,000 mortgage (with a 6% interest rate) will save you over $35,000 in interest charges. To learn more about how pre-payments can improve your mortgage payment calculations, keep reading.
How a Self-Amortizing Mortgage Works
A self-amortizing mortgage, which is the majority of mortgages, means the interest and the principal will be paid off within a certain number of years. Every month, the amount of money assigned to your interest and to your principal is recalculated depending on your amortization schedule.
Basically, if you make a pre-payment your mortgage payment calculations are re-done and re-calculated to make sure you're still set to hit a zero balance at the end of your term.
What Happens When You Make a Pre-Payment
When you make a pre-payment on your mortgage or an extra payment against the total principal owing, you now owe less than the principal amount that was showing on your amortization schedule for next month.
Since your monthly payments will stay the same, that division between what goes towards principal and what goes towards interest will be recalculated. Every month, as you make payments, your mortgage payment calculations will show you that the amount being paid to interest is getting smaller while your principal payments are getting larger.
How Much You Can Save
For a family with a modest $250,000 mortgage on a 30-year term and with a 6.5 percent interest rate, a simple monthly prepayment of just $200 can shave 8 years off their mortgage and save them over $97,000 in interest charges.
Basically, when you make prepayments on your mortgage, it's like earning back the interest or 6.5 percent on those prepayments. So, before you put away those mortgage payment calculations, isn't it time you tried it adding just $50 more each month?
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HomeLoanMortgagers.com :: Mortgage Payment Calculations