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.
Learn More About Buying a House
Pay off your mortgage early with these helpful tips. Get serious about repaying your mortgage to join the ranks of debt-free homeowners.
We’ll demonstrate the steps to take so you’ll feel confident on your home adventure if you want to know how to downsize your house and maximize your profits.
A bad mortgage could wreck your finances!
Mortgage Payoff Calculator Uses
Calculate how quickly you can pay off your mortgage using this tool. You can figure out how to reduce the total amount of interest you’ll pay over the course of the loan by calculating the impact of extra payments.
Planning to Pay Off Your Mortgage Early?
Use the “Extra payments” feature to learn how you can make extra principal payments on your loan each month, every year, or all at once to reduce the length of the loan and lower the interest you pay.
Understand Your Mortgage Payment
In this mortgage payoff calculator, your mortgage payment is referred to as your principal and interest payment. By making additional principal payments, you can lower the total amount of your loan and reduce your interest costs.
Remember that additional expenses like homeowners insurance, property taxes, and private mortgage insurance (PMI) may be covered by your monthly payment. Try our free mortgage calculator for a breakdown of your mortgage payment costs.
Accelerate Your Mortgage Payment Plan
Find more inventive ways to increase your mortgage loan payments. You can accelerate the repayment of your mortgage debt and avoid paying thousands of dollars in interest by making additional payments toward the principal balance. Use EveryDollar, our free budgeting tool, to determine how additional mortgage payments fit into your spending plan.
See how much interest you can save and how quickly you can pay off your mortgage.
Let’s say your remaining balance on your home is $200,000. On a loan with a 30-year fixed rate, your monthly principal and interest payment is $993 at the moment. You choose to accelerate the repayment of your mortgage by paying an extra $300 each month toward the principal. By increasing your monthly payment by $300, you’ll pay off your house over 11 years earlier and save just over $64,000 in interest.
Consider another example. Your current home has a $350,000 remaining balance on a 30-year fixed rate mortgage. You decide to increase your monthly payment by $1,000. Your home could be paid off almost 16 years sooner and you could avoid paying nearly $156,000 in interest if you made that extra principal payment each month.
We’ve simplified some of the terminology to make it easier to understand because we know that some mortgage terms can be confusing and overly complicated.
The amount you financed with a mortgage loan when you bought a home is your original loan amount. For instance, your initial loan would be $160,000 if you put 20% down on a $200,000 house.
The amount you still owe on your mortgage loan is known as your remaining loan balance. Your remaining loan balance would be $220,000 if your initial mortgage loan was $250,000. This is the case if you made principal payments of $30,000 over the first five years.
The loan term is the period of time needed to pay off a debt. Loan terms are frequently determined by the length of time it will take if only the minimum payments are made.
The difference between the value of your home and the amount you owe on it is your equity. Suppose your house is worth $310,000 and your mortgage balance is $250,000 Your home equity is $60,000. Simply deduct the amount you owe from the property’s market value to determine your own home equity.
The ongoing payment you make to finance your home purchase when you have a mortgage is known as the interest rate. Typically, your interest rate is shown as an annual percentage of your outstanding loan balance. For instance, a mortgage balance of $200,000 at 4% interest would increase your monthly payment by about $652. The amount of interest you pay drops as your principal balance is reduced as a result of regular payments or additional contributions.
Your mortgage payment (principal and interest), homeowner’s insurance, real estate taxes, and community HOA dues are all included in your monthly payment. In order to still be able to accomplish your other financial objectives, we advise keeping your monthly payment at about 25% of your monthly take-home pay.
A planned, incremental repayment schedule is known as amortization when paying off debt. An amortization schedule can assist you in estimating the length of time you will be making mortgage payments as well as the amount of principal and interest that you will pay. The length of time you are in debt can be changed by altering the size or frequency of your payments.
You can reduce your interest costs and speed up the repayment of your loan by making additional payments toward the principal balance of your mortgage. Set aside additional funds each month in your budget to pay down your principal balance if you want to make additional mortgage payments.
If you pay off or reduce the balance of your mortgage early, you may be assessed a prepayment penalty. If there is a prepayment penalty, it might only apply to specific kinds of payments. For instance, you might be able to add $500 to your monthly payment without paying a fee, but if you pay off your mortgage in full with a lump sum, you might. Prepayment penalties are uncommon in mortgage loans, but it’s important to confirm with your lender if you’re unsure.
FAQ
How can I pay my mortgage off early with a lump sum?
The initial choice is to make a single payment that covers the remaining balance. But before you do, you must find out if there is a prepayment penalty from your lender. Prepayment penalties may cost between 2 and 5 percent of the total loan balance depending on the lender, which can add up.
Is it wise to pay off a mortgage in one lump sum?
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.
How do I calculate paying off my mortgage early?
- Use the 1/12 rule. Add the result to each monthly payment by multiplying your monthly principal payment by 12.
- Use a savings account. Each month, save a twelfth of the principal payment, and then use that money to make a thirteenth payment.
- Make biweekly payments.
Is it better to pay lump sum off mortgage or extra monthly?
Paying additional installments on your loan has a significant impact on the total amount of interest paid over the loan’s life, regardless of the amount of money applied to the principal. Additionally, making extra payments or a lump sum payment can significantly shorten the term of the mortgage.