Mortgage Calculators and Extra Loan Payments

Mortgage calculators can be a very convenient tool to analyze the impact of making extra mortgage payments on an existing mortgage loan.  Mortgage calculators can determine how much you can reduce the length of your mortgage loan by making additional payments in addition to how much interest you can save by paying an additional amount with your mortgage payment.  Additional payments on most all mortgage loans, including repayment of the entire balance, are optional and generally unrestricted.  Cases of prepayment penalties may add costs to prepayments and of course a balloon loan will require complete repayment prior to maturity.  If there is a prepayment penalty they usually last for only a few years and are triggered by prepaying the loan but a preestablished percent of the loan balance.  Another word, the prepayment penalty will generally not be triggered if the borrower is prepaying the loan by less than 25% of the original balance.

This type of mortgage calculator will provide the new principal balance you have on your loan after you have made any specified number of payments.  The results from this calculator can be of assistance in analyzing adjustable rate products in additions to analyzing new payments at various interest rates using the mortgage payment calculator.

The mortgage calculator calculates the savings in mortgage interest you realize by making prepayments for a given set of loan terms.  It also calculates how many months sooner you will pay off the loan.  The entire amount of additional payments is applied to amortizing the loan principal.

When deciding to whether or not to make additional principal payments the borrower should compare the mortgage rate with the yield available on other investments, not just the principal value of the loan after the payments.  A mortgage calculator can help determine the future value of investing the money compared to paying additional principal.  If a borrower decides to save their additional funds in a bank or some other investment, their assets increases in value with those additional funds, if that same borrower prepays their mortgage, their wealth will increase because of a reduction in their debt levels. 

Additional principal payments on a mortgage are savings and a mortgage calculator is good starting point to weigh the impact on the loan balance and the savings that may be available with this option and others.

This entry was posted on Thursday, December 11th, 2008 at 10:44 pm and is filed under Mortgage Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.