mortgage calculator extra payment towards principal

Using a Mortgage Calculator to Make Extra Payments Towards Principal

Making normal monthly mortgage payments is important for paying down your loan over time. However, paying a little extra towards your mortgage can make a significant difference in the long run. By using a mortgage calculator and making strategic extra payments, you can shorten your total loan term and reduce the amount of interest paid.

Let's take an example to illustrate this point. If you make bi-weekly payments of $477.50, instead of one monthly payment of $955, you could shorten your total loan term by more than four years and reduce the interest paid by over $22,000. It's essential to check with your lender first to ensure that this option is available for your loan.

When you make extra payments towards principal, these funds can be applied directly to your outstanding balance. This means that you're not just paying interest on your loan, but actually reducing the amount of money you owe. By making regular extra payments, you're essentially making an additional monthly payment each year.

For instance, if you pay $200 extra per month towards principal, you could cut your loan term by more than eight years and reduce the interest paid by over $44,000. Alternatively, if you make half-monthly payments every two weeks instead of one full monthly payment, you can also cut your loan term by a significant amount.

To illustrate this point further, let's consider an example scenario. Suppose you have a 30-year fixed-rate mortgage for $200,000 with an interest rate of 4%. If you make regular payments without any extra payments, your total loan term would be 30 years, and you would pay over $343,739, including $143,739 in interest.

However, if you make extra payments towards principal, the results can be dramatic. For example, if you pay $100 extra per month towards principal, you could cut your loan term by more than four and a half years and reduce the interest paid by over $26,500.

The key to making extra payments work in your favor is to understand how mortgage amortization works. Essentially, mortgage amortization is the reduction of debt over time through regular payments of principal and interest. At the beginning of the loan term, most of each payment goes towards interest, with a smaller amount paying down the principal balance.

By making extra payments, you can reduce the amount of interest you pay over the life of your loan. This is because interest is calculated against the outstanding principal balance. When you make an extra payment or a larger-than-usual payment, you can designate that these funds be applied to principal.

If you have a 15- or 30-year fixed-rate loan and want to pay it down faster, making extra payments on your mortgage could be the key to achieving this goal. Not only will you repay your loan more quickly, but you'll also save thousands of dollars in interest over the life of your loan.

By using a mortgage calculator and understanding how mortgage amortization works, you can make informed decisions about paying down your mortgage faster and reducing the amount of interest you pay. With careful planning and strategic extra payments, you can achieve financial freedom sooner than you thought possible.

Mortgage calculator extra payment towards principal