How to Save Thousands of Dollars Using a Mortgage Prepayment Calculator

Using a mortgage prepayment calculator is probably not the first thing on a new homeowners mind. After all, you just moved into your brand new home and are hit with a lot of extra expenses. The last thing you want right now is to come up with another $50, $100, or even $500 per month on your mortgage.

There are however, many reasons why you should at least consider running through a couple scenarios using a mortgage prepayment calculator. If you are interested in saving tens of thousands of dollars on your home, keep reading for more details!

Advantages of Using a Mortgage Prepayment Calculator

Using a mortgage payoff calculator can come with plenty of advantages. Here are a few that may be of interest to you –

• Pay Less Interest – The amount of interest that you will save is incredible over the course of a loan, and a mortgage prepayment calculator can identify it! Even adding an additional $50 per month in extra mortgage payments can save you over $10,000 on the total cost of a home. That savings alone should make you pay attention!
• Owning Your Home Sooner – With all the financial chaos going on in the world lately, there is something special about owning your home. By making additional monthly payments on your mortgage, you can take years of off your loan. Just think, you can own your home outright sooner and enjoy all that extra savings down the road. All you need to start the process is to use a mortgage prepayment calculator to find out the total savings by making extra monthly payments.
• Free Mortgage Calculators – There is typically no additional cost in determining your savings as there are plenty of free mortgage calculators available today. Since there are no costs involved, the only thing you are out is a little bit of your time!

While there are plenty of advantages in using a mortgage prepayment calculator, there are some possible disadvantages that should be covered. If you are using your home for tax breaks, paying it off early will eliminate this possibility. You should always look at the bigger picture when it comes to making these types of decisions.

There is also the possibility that you could be using the money from your extra monthly payments on other investments. Be sure to calculate the true savings on paying off your mortgage early versus investing in other high yielding assets.

Mortgage Loan Information

One of the things required to successfully use a mortgage prepayment calculator is accurate data. If you are a current homeowner, then you probably already have this information available. If you don’t own your home, then you may have to make some estimations on the price of a home, along with several other factors. Here are some common pieces of data required to use a mortgage prepayment calculator.

• Length of Mortgage – One of the most critical pieces of data when using any type of monthly payment calculator is the length of the loan. In this case, it is the original number of years (or months) in which the mortgage was taken out. If you have taken out a traditional fixed mortgage, then you probably have a 15, 30, or 40 year loan.
• Original Mortgage Amount – Just as knowing the original terms of the loan are important, so is the original mortgage loan amount (this value will be required in all mortgage prepayment calculators). If you are just purchasing the home or are looking for one, then you should already know this value. On the other hand, if you are looking to start paying off your mortgage early, then you may need to go back to your records to find the original loan amount.
• Annual Interest Rate – Unless you are looking to refinance your home, having the original annual interest rate is necessary in order to use any type of monthly payment calculator. If you are planning on refinancing, then you may need to look for one of the other available free mortgage calculators available today.
• Remaining Months on the Mortgage – If you are running your mortgage prepayment calculator on a home that you have made a least one payment on, then you need to identify the remaining months left on the loan.
• Additional Monthly Payments – Since the plan is to use a mortgage payoff calculator to determine your total savings, you need to identify how much extra money you plan to contribute. Check your personal budget (if you don’t have one, you need to create one) and determine how much extra money you can afford each month. When you get around to actually using your mortgage prepayment calculator, play around with several different amounts that fit into your budget to see your best option.

Tools

So now that you know about the data that is required to run a mortgage prepayment calculator, you may be wondering where can you find one? This is just one type of the many free mortgage calculators you can find today on the internet.

• Spreadsheet Software – Loan prepayment calculations have long been run in spreadsheet software applications. If you are looking to run any type of monthly payment calculator using spreadsheets, check to see if there is any kind of macro available on the internet to download to make the work easier.
• Online Mortgage Prepayment Calculators – As you may have already guess, the internet is full of all types of monthly payment calculators. Do a little research and find the application that works best for you.
• Loan Amortization Schedule – Most good online mortgage payoff calculators have a loan amortization schedule already built in. However, if you are handy with numbers, you should be able to calculate any prepayment savings realized from making extra monthly payments.

Biweekly Mortgage Payments

One very popular loan options offered by some of the top mortgage lenders involves making biweekly mortgage payments in order to reduce the overall costs. Most of these plans require the borrower to split their monthly payments in half paying one mid month and the other at the end. Check with your lender if they offer this type of plan. In this case, you may not be able to use a mortgage prepayment calculator and will need to look for one that calculates bimonthly payments instead.

Setting up a loan to make biweekly mortgage payments is just another opportunity to pay down your principal quicker. By paying down your principal sooner, you won’t be required to pay as much interest over the term of the loan. Those extra payments overtime can save you thousands and thousands of dollars!

Mortgage Prepayment Calculator Example

Talking about using a mortgage prepayment calculator sounds good and the savings are nothing to ignore. However, without actually running a calculation and seeing the results, it can be difficult conceptualizing the true value.

Go and find a free mortgage calculator out on the internet and use the following values to run a calculation. Run several examples using different additional payment amounts with different interest rates. Get a good feel for how just a slight change can drastically increase your savings. As you adjust to using a mortgage prepayment calculator, you can make changes to the data that you decide to input.

Example -

• Length of Mortgage – 30 Years (or 360 months)
• Original Mortgage Amount – $250,000
• Annual Interest Rate – 6.5%
• Remaining Months on the Mortgage – 360 months (or 30 years)
• Additional Monthly Payments – $100

In the above example, we are assuming that you are planning to start making additional payments in the first month of the loan.

After running your mortgage prepayment calculator, you would have found the following results by paying an additional $100 per month on your mortgage -

• Interest Saved – $58,860.18
• Years Saved – 4 years 8 months
• Payments Eliminated – 56

As you can tell, if you can afford an additional $100 each month, you could save over $50,000!

If you want to get really serious, you can pay an additional $200 each month and save over $97,000! These savings can quickly be identified from a mortgage prepayment calculator.

Final Thoughts

As you can tell, there are a ton of advantages to paying off your home early, and a mortgage prepayment calculator is a tool that will help you get there. You may decide to go down the path of biweekly mortgage payments or choosing to add on extra principal every month. No matter which option you choose, it is still important that you at least consider reducing the life of your loan. Using a mortgage prepayment calculator is just one tool that will help you get there.

This entry was posted on Thursday, January 21st, 2010 at 5:45 pm and is filed under Mortgages. 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.