Calculating the Benefits of an Early Payoff

Article Posted by Expert Author: Sam Stieler  on 09/23/2013

What are the benefits of using a mortgage calculating tool?  To answer this question we have to answer and much more basic, ground-level question… what are the benefits of paying off your mortgage early?

If you simply pay the minimum on your home loan every month than you’re going to pay a LOT of extra money in interest rates by the time you pay off your loan. In other words- the longer it takes you to pay off your loan the more interest you will pay, and the more money (as a whole) you will pay to clear your debt. By contrast- the faster you pay off your mortgage the less interest rate you will pay and the less you will ultimately spend to own your property.

Some of the benefits related to the early payoff of your mortgage is the fact that any payments you make toward your principle with additional monthly payments will mean that the length of your loan as a whole will be reduced. For example, a thirty-year fixed-rate mortgage where one additional monthly payment per year is made can reduce the length the loan by seven years.

Less Interest

Another benefit of paying your mortgage off early is the fact that you will realize a reduction in interest. This is because additional payments reduce total paid interest on your debt over the loan's life. The monthly interest you pay is based upon your loan's principle balance. Just as with the reduction in the length of your loan, one extra mortgage payment yearly can result in much money being saved on interest.

Higher Amount Of Equity

More equity is another advantage of early mortgage payoff. When the monthly payments are increased, the goal of owning a home without debt can be reached that much more quickly. And the reduction of your mortgage's principle means increased equity. Increased equity can also result in another benefit, which is more money for your home should you sell it before you have paid your mortgage in full. More equity in a home can also mean a larger line of credit if extra cash is needed.

Strategies For Early Mortgage Payoff

Homeowners looking to pay their mortgages off early have a few options. First, they can add the principal to the amount they currently pay per month. Of course, this strategy assumes that the mortgage being paid has no prepayment penalties.  The principal can be added as a one-time lump sum payment, or it can be added month-by-month by sending any bonuses right to your lender. This strategy will ensure that none of the payments need to be seen or missed.

Another strategy is to make bi-weekly payments on your mortgage. Making half a payment every two weeks will add up to 13 full payments per year instead of 12. This can amount to a significant reduction in the life of your mortgage loan. However, it's important to check with your lender to see whether they will charge a fee for switching to bi-weekly payments.

Refinancing to a shorter term mortgage may also be a way to pay your mortgage off early. By reducing a thirty year mortgage to fifteen years, the interest rate will be lower. While doing this will increase monthly payments, the monthly flow of cash will be offset by the lower rates.

But is a mortgage calculator early payoff tool right for everyone?  In a word, yes.  Because this calculator enables anyone to budget all of the variables that go into a mortage, it is useful whether you wish to refinance or purchase a new home.

Anyone who wants to spend as little as possible in the long run on their home loan will benefit from using a home mortgage calculator tool.  You can find one at http://www.home-mortgage-calculator.com/ along with useful advice and articles to help you negotiate the process of getting a loan or refinancing an existing one.


Article Posted In:  Mortgage 411  Home Mortgage Calculator  

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