Early Loan Repayment: A Little Goes A Long Way
One of the most common ways that people pay extra toward their mortgages is to make bi-weekly mortgage payments. Payments are made every two weeks, not just twice a month, which results in an extra mortgage payment each year. There are 26 bi-weekly periods in the year, but making only two payments a month would result in 24 payments.
Instead of paying twice a week, you can achieve the same results by adding 1/12th of your mortgage payment to your monthly payment. Over the course of the year, you will have paid the additional month. Doing so can shave four to eight years off the life of your loan, as well as tens of thousands of dollars in interest.
However, you don’t have to pay that much to make an impact. Even paying $20 or $50 extra each month can help you to pay down your mortgage faster.
Calculating Your Potential Savings
If you have a 30-year $250,000 mortgage with a 5 percent interest rate, you will pay $1,342.05 each month in principal and interest alone. You will pay $233,133.89 in interest over the course of the loan. If you pay an additional $50 per month, you will save $21,298.29 in interest over the life of the loan and pay off your loan two years and four months sooner than you would have.
You can also make one-time payments toward your principal with your yearly bonus from work, tax refunds, investment dividends or insurance payments. Any extra payment you make to your principal can help you reduce your interest payments and shorten the life of your loan.
Paying Extra And Rounding Up
For this example, we will round up $26 each month, plus we will pay an additional $125 each month.
So our new monthly payment is $1,225 per month.
With this method, you knocked off about 8 years and saved around $50,000 in interest.
Not bad for a small sacrifice, but we werent able to cut a 30 year mortgage in half.
Lets try another combination.
Early Auto Loan Payoff Calculator
Have an auto loan that you want to pay off sooner? Wondering how much faster you could pay it off by paying a bit more each month? And how much interest you could save in the process?
This Early Auto Loan Payoff Calculator has the answers.
Enter how much extra you want to pay each month, and the calculator will immediately tell you how many months you’ll shave off your loan and your total savings in interest. It can also show how quickly you’re paying down the loan, with the balance remaining for each month until the vehicle is paid off.
This is good information to have if you’re thinking of trading in the vehicle before it’s paid off and wondering how much to knock off the anticipated trade-in value.
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Attack Your Debt Snowball
If youre working hard to kick debt to the curb, downsizing your home is a huge way to crank up your intensity. Lets say you owe $18,000 on your student loan. With a 6% interest rate and a minimum payment of $200 a month, youll be paying on that loan for 10 more years!
But throw an additional $500 at your loan each month, and youd trim a whopping seven-plus years off your payoff date. Sallie Mae will have to find a new place to live, because youll be free from student debt in less than two-and-a-half years!
Using The Line Of Credit Payoff Calculator
The calculator is fairly straightforward. However, some of the terms used may not be self-explanatory. So to use the calculator, enter the following
- Current balance: The amount you presently owe on your line of credit
- Interest rate: Where the interest rate on your line of credit currently stands
- Rate change: How much you expect your rate to increase or decrease per year
- Payoff goal: How quickly you’d like to pay off your loan balance.
- Current monthly payment: How much you’re presently paying toward your line of credit. This will be used to show how much faster your new payments would pay down the loan.
- Additional monthly charges: How much extra you’re paying toward the loan each month on top of your minimum payments .
- Annual fee: What your lender charges each year to maintain your line of credit.
Below this is another section, labeled “future draws from line.” You may need to click the plus symbol to make this window open up. When you do, you will be presented with options for entering amounts for up to four additional draws against your line of credit, of varying amounts and at different times.
When all your information is entered, the monthly payment required to pay off the line of credit will show at the top of the page. The graph will illustrate how fast you’d pay off the loan with the new payment compared to your current payments.
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Use Credit Card Rewards
Wouldnt it be great if you could use credit card rewards to pay off your mortgage faster?
We had our last mortgage through Wells Fargo and one day when I logged into our account, I saw a note about their Home Rebate Card.
For the first six months, you earn 5% cash back on gas, groceries and drugstore purchases and 1% on everything else.
After the six months are up, you earn a flat 1% on purchases.
The nice thing about the card is that there is no annual fee and the cash back is automatically transferred to your mortgage principal.
If you dont have a mortgage through Wells Fargo, you can still do this mortgage pay off trick and pay off your mortgage fast.
Here is the process.
You make the transfer from checking to savings since you never had to pay the amount you took a statement credit for.
If you spend $150 a week on groceries and $50 a week in gas, you would earn $625 a year in cash back.
Apply this to your mortgage once a year and you knock off over 3 years and save more than $20,000 in interest!
Of course, you dont want to go into debt when doing this, otherwise the point of paying off your mortgage early is lost.
Choose An Accelerated Option For Your Mortgage Payments
An accelerated payment option lets you make weekly or biweekly payments. With this option, youre putting more money toward your mortgage than with a monthly payment.
Accelerated payments can save you money on interest charges. By accelerating your payments, you make the equivalent of one extra monthly payment per year.
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Amortization Table And Interest
- Expanding the “Auto Loan Balances and Interest” section below the Auto Loan Payoff Calculator will display a graph illustrating the rate you will pay down your loan with and without any additional payments, plus your accumulated interest charges over time.
For the full amortization schedule, choose whether you want to see monthly or annual amortization then click “View Report” at the top of the page. You’ll then see a page showing how much you’ll shorten your loan by, the graph illustrating your amortization, a summary of the loan and a line-by-line table showing the amortization of the loan over time and comparing regular vs. accelerated payments.
- FAQ: Great tool to make positive decisions on budget planning and goals
If you’re looking to trade in your car at some point in the future, the amortization schedule is useful in that it lets you know exactly how much you’ll still owe on the loan at any point in time. You can then use this information, combined with the vehicle’s depreciation, to estimate what your trade-in value would be.
Work With A Mortgage Lender We Trust
Amortization isnt the easiest topic to wrap your brain around. So if you want to learn more, talk to our home loan specialist friends at Churchill Mortgage. They actually care about helping you get a mortgage you can afford and pay off fast.
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
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Consider An Offset Account
An offset account is a savings or transaction account linked to your mortgage. Your offset account balance reduces the amount you owe on your mortgage. This reduces the amount of interest you pay and helps you pay off your mortgage faster.
For example, for a $500,000 mortgage, $20,000 in an offset account means you’re only charged interest on $480,000.
If your offset balance is always low , it may not be worth paying for this feature.
Pay Off Your Mortgage
Okay, heres one more smart way to use the extra money you get from downsizing your home: Trade in your mortgage for a paid-off home! Use the proceeds from selling your current home to pay cash for a smaller one. Just imagine what you could do with no mortgage holding you down!
If you cant pay cash, aim for a 15-year fixed-rate mortgage and put at least 1020% down on your new home. Apply the $500 you saved from downsizing to your new monthly payment. At 4.5% interest, you could pay off a $200,000 mortgage in less than 10.5 years, saving more than $25,000 in the process. Cha-ching!
Use our full mortgage payoff calculator to see how quickly you can pay off your house!
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Why You Should Get Pre
oobas pre-approval allows you to check your credit score and assess how much you can afford.
Shop with confidence
Knowing your credit score allows you to address any issues before applying for a home loan.
Know how much you can afford
ooba considers your financial information in the same way a bank would, to give you an accurate assessment of what you can afford.
Get the competitive advantage
Sellers are more likely to accept an offer from someone who has proof that they can afford to buy.
Sign a sale agreement with peace of mind
Pre-approval protects you from putting in an offer on a property you cant afford. Why risk disappointment?
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How Do I Calculate Amortization
To calculate amortization, first multiply your principal balance by your interest rate. Next, divide that by 12 months to know your interest fee for your current month.
Finally, subtract that interest fee from your total monthly payment. What remains is how much will go toward principal for that month. This same process repeats every month until your loan is completely paid off.
We know calculating amortization can make you want to throw a desk out the window. But stay with us. Well walk you through an example.
Home Equity Line Of Credit Calculator Faqs
How do I calculate home equity?
You can calculate home equity by subtracting the amount owed due to the mortgage from the current estimated value of the house. You may also make use of our Home Equity Line of Credit Calculator to determine further how much you can borrow based on your current home equity.
How do Home Equity Loans work?
A home equity loan provides a line of credit from which you can borrow over time up until a specific limit. The loan, however, is secured by the equity of your home. The loan is to be repaid over a period, and failure to do so leads to foreclosure of the home used as collateral.
How much Home Equity loan can I get?
The amount of money you can get for a Home Equity Loan is chiefly determined by how much equity your home currently has. Your equity, in turn, is arrived at by subtracting the amount you owe in mortgage loans from the current value of your home. Most lenders offer only 75-90% of your current home equity up for borrowing.
What does an equity line of credit calculator do?
An equity line of credit calculator shows you how much you can borrow based on your current home equity. It also clarifies how that amount will vary with a change in the value of your home.
How does an equity line of credit calculator work?
How much equity do you need for a HELOC?
How to take out a home equity loan?
What credit score is required for Home Equity Loan?
How much money can I borrow in a HELOC loan?
How to calculate home equity percentage?
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Vehicles Last Longer As Well As Auto Loans
- Cars, SUVs, Trucks last a lot longer than they used to. 100,000 miles used to be considered a pretty good indication your vehicle was nearing the end of its useful life. These days it is not uncommon for a vehicle to go 200,000 miles or more.
Better engines and transmissions, improved corrosion protection, more durable components all add up to vehicles that hold up a lot longer than their predecessors.
- Consumers are also doing a better job of keeping up on auto maintenance schedules.
With cars lasting longer, lenders are willing to make longer auto loans as well. Auto loans of five, six, even seven years are increasingly common because the lender is confident the vehicle will keep running that long.
Longer loans mean lower monthly car payments, which is important when you’re looking at $25,000 or more for even a basic new vehicle. A good used car can easily run $10,000 or more.
- FAQ: Longer loans mean a lower monthly payment and a more affordable vehicle.
Unfortunately, those affordable monthly payments cost you money over the long run. Interest charges pile up over time and with the way loan amortization works, each additional year you add means disproportionately higher interest costs over the life of the loan.
- FAQ: In fact, you may be surprised by how small the difference in monthly payments can be between a six-year and a seven-year auto loan, due to the additional interest costs over the life of the loan.
Amortization Period Vs Mortgage Term
An amortization period tells you how long itll take to pay off your mortgage, while a mortgage term tells you how long you are locked into a specific mortgage contract with your lender.
For example, you could do a mortgage refinance to change your mortgage term. This would change things like your interest rate, monthly payment amount and amortization period.
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How Does One Payment Matter
Making an extra payment to your mortgage is something that you should consider because it can save youthousands ofdollars. The fact is that just one payment can make a considerably difference in the total that you payforyour home and what’s more, it can shave years off of that mortgage. Take a look at the followingexample.You can use a mortgage calculator to help you to find out this information specific to your currentloan.
If you currently have a $200,000 mortgage loan and you have secured an interest rate at 6.5 percent, yourmonthlypayment is likely to be $1264 dollars per month if your loan term is 30 years. This is a considerablepaymentand you may not realize that the real facts of what you will be paying on the home you are purchasing.It willcost you far more than $200,000.
Original mortgage amount: $200,000Total interest paid on your loan: $255,088.98How much you will really pay in fullat the end of your term: $455,088.98
This information is provided to you on your amortization statement which is what you will see at the timeof closingthe sale on your home. Your lender must provide this for you before you sign your paperwork, so itshould notbe too much of a surprise to you as to how much you will pay for your home when interest is factoredinto the cost.If you are still unsure, use a mortgage calculator to help you to see what these numbers are for yourparticularsituation.
What The Mortgage Payoff Calculator Tells You
The Summary Results section has two subheadings:
How to reach your goal describes how much you would have to pay in principal and interest every month to meet the payoff goal. It lists the original principal-and-interest payment, and how much you would have to add to the minimum monthly payment to meet your goal.
Loan comparison summary describes the total cost of the mortgage in principal and interest payments, the original monthly principal-and-interest payment, the total cost in principal and interest if you pay it off early, and the new monthly principal-and-interest payment to reach your payoff goal.
“New monthly P& I” and “Original monthly P& I” comprise only the principal and interest portions of your monthly payments. Your full monthly payment will include principal and interest, plus the other monthly costs, such as taxes, homeowners insurance and mortgage insurance .
The early mortgage payoff calculator also lets you enter different numbers into the “In how many years from now do you want to payoff your mortgage?” box to see how those changes affect your total savings.
For more information about how the process of gradually paying off a mortgage works, see this explanation of mortgage amortization.
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