Some of the questions I have regarding mortgages and just loans in general have had to do with whether it is a good idea to make extra payments on the principal. If you have similar questions, please feel free to download the Extra Payment Mortgage Calculator for Excel.
Why Make Extra Payment Mortgage?
There are many reasons a person wants to make additional payments on the principal of a loan, but the most common reasons seem to be:
- To payoff a home, auto, or consumer loan more quickly.
- Also, To reduce amount of total interest paid.
- To take advantage of high mortgage interest rates when other savings plans have lower interest rate.
Mortgage calculator with extra payments
Calculate the difference in total interest paid on mortgage loan when making additional monthly payments.
Extra Repayment calculator
Paying off a Mortgage Early
This approach is easy to understand. If you make additional payments, you’d expect loan to paid sooner. The spreadsheet assumes that extra mortgage payments are to pay every month.
Pay Less Total Interest
Each month, your payment consists of both interest and principal. The amount of interest that is paid depends upon amount of principal still owe . That means that if you pay down principal, you will end up paying less interest. This is the so-called “interest savings” that is calculated in worksheet (i.e. the reduction in the interest expense).
Extra Payments vs. Savings
It may be weird to think of making additional payments as an “investment”, but it turns out so that making extra payments is nearly identical to placing money in a savings plan. If mortgage interest rate is same as for the savings plan, then the amount of reduce interest expense from making extra payments is identical to the amount of interest “gain” in the savings plan (assuming both rates are fixed and compound monthly). The main difference is that with a savings plan (or other similar investment), the cash is more readily available mortgage amortization calculator with extra payments.