When you receive a lump sum from an inheritance, tax refund, or sale commission, you probably think about the best way to spend the money. One factor to take into account is paying off debt, including credit card, mortgage, and auto loans. By avoiding the interest you would otherwise pay on the loan, paying off debt gives you a guaranteed return on your investment. That return may be higher than anything you could earn by investing the money, depending on the type of loan, especially credit cards. You’ll pay off the loan sooner and save on interest, which will result in extra money at the end. To compare the figures and estimate how much you can save, use this calculator. Your browser does not support iframes, but you can visit.
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How do I figure out my loan payoff amount?
You can use a formula to determine the amount of your mortgage payment. To determine the daily interest rate, multiply the loan balance by the interest rate, and then multiply that result by 365. Your mortgage payoff amount is determined by multiplying this amount by the number of days until repayment and adding the loan balance.
How much will a lump sum payment affect my loan?
Your repayment arrangement with your lender won’t change if you make a lump sum payment, but you’ll pay a lot less interest overall and the term of the loan will be cut short.
Is it better to pay lump sum off mortgage or extra monthly?
Making a lump-sum payment always saves you money on interest. The payment will also either speed up the process of paying off your mortgage or lower your monthly payments, depending on how you handle it.
Will my monthly payments go down if I pay a lump sum?
Making a lump sum payment on your mortgage or refinancing a loan won’t lower your required monthly mortgage payments; you’ll still have to pay the same amount to your lender moving forward. However, your interest charges for each month will be adjusted.