Every mortgage requires you to pay interest. How much interest you pay depends on the interest rate you get with the loan. The higher the interest rate, the more interest you pay. However, it is possible to make prepayments on your mortgage. A prepayment is just an early repayment of a loan. So, in terms of a mortgage, it would be making additional monthly payments on the principal of your mortgage with no additional interest. Making these prepayments each month can reduce the total interest you pay on the loan as well as allow you to pay off your loan early.
So, you have your mortgage, but how early would you be able to pay off your mortgage if you put in a prepayment each month? How would different prepayment amounts affect the total interest paid on the loan? And how does making these prepayments compare to making the standard monthly payments? This calculator tries to help you figure that out.
One thing to keep in mind when making prepayments is that there are possible penalties. Lenders will give you a prepayment penalty if you make too many additional payments on the loan. These penalties are to protect lenders from losing significant interest income. You will need to check with your lender to know the limits on prepayments to avoid these penalties if you wish to make them.
When comparing making prepayments to investing keep in mind that investing carries risk, this is done on the compare tab. Since investments carry risk the amounts shown on the compare tab could be different which may change the outcome. It is also important to consider your risk tolerance when comparing making prepayments vs investing.
Below are some scenarios that could give you a better idea of how to use this calculator.
You recently got a mortgage and purchased a house. You have some extra money each month and want to see how it would affect the amount of interest you pay on your mortgage. You would also like to pay off your mortgage early and want to see how early you could pay it off with various prepayment amounts.
You want to buy a house in the future but want to know more about how interest affects the total amount you are paying toward your mortgage. You don't have any specific numbers in mind but want to see if it is worth it to pay off the mortgage early or to invest that money elsewhere.
This section shows you how much interest you would save on your mortgage with the given monthly prepayment and loan amounts. The fields on the right side of the calculator can be adjusted, which would change the interest amount displayed in the center.
This section allows you to compare the total interest paid toward your mortgage at yearly or monthy intervals for both scheduled and prepaid payments. The blue line and points represent the normal scheduled interest totals that would be associated with the minimum monthly mortgage payments. The yellow line and points represent the prepayment interest totals that would be associated with the mortgage payment with the additional monthly prepayments.
This section allows you to compare the total mortgage amounts and the total interest amounts for the scheduled and prepaid mortgages. This gives you an idea of the total cost of a mortgage with the interest payments included. You can also see how the scheduled mortgage and interest totals compare to the prepaid mortgage and interest totals.
Clicking the Advanced Options button will open a popup with the age field. This allows you to enter your age. Doing so will display how old you will be when the mortgage will be paid off with the prepayments.