How to Pay Off a 20-Year Home Loan in 15 Years
When you pay off a 20-year home loan in 15 years you will save yourself a vast amount of interest because you shorten the term of the loan. If you want to get a 20-year loan paid off in 15 years there are some steps you will need to take. You will need all of the terms and conditions for the loan. When you pay off your mortgage five years quicker, you can use the mortgage payment for a number of other things such as saving, investing or paying other debts.
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Instructions
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Get a mortgage loan calculator by going to bankrate.com. A mortgage loan calculator is a tool used to help calculate terms for mortgage financing. First key in the amount of the loan as well as the number of years the loan will be outstanding. The interest rate will be needed as well. That will be 20 years in this particular case. When all of the figures have been entered, hit the "Calculate" button to get the monthly payment.
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Find out all of the terms and conditions for your home loan. A home loan with a balance of $200,000 and an interest rate of 6 percent will have monthly payments of $1,432.86 for 20 years. At the end of 20 years you will have paid a total of $143,886.91 in interest, and the total amount paid will be $343,886.91, which represents the principal balance plus interest charges. If the balance were smaller, the monthly payment would be smaller.
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Find out the monthly payment needed for a 15-year loan. Using the same figures you can find out the monthly payment needed to pay off the loan in 15 years. All of the information will remain the same except the term will be changed from 20 years to 15 years. The monthly payment for a 15-year loan will be $1,687.71. When you switch from a 20- to 15-year loan, the mortgage payment increases by $254.85 ($1,687.71 - $1,432.86). The total amount paid in interest is $103,788.46. By cutting the term by five years, you save $40,099.11 in interest charges. You make 180 payments instead of 240 payments. The total amount of the loan is $303,787.80.
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Get new terms if the interest rate is changed. If the interest rate is reduced to 4 percent, the payments will change to $1,479.38 for a term of 15 years. The total amount of interest paid will be $66,287.65. The lower interest rate makes a substantial difference in the interest paid. That's why it's a good idea to refinance your mortgage loan when the interest rates decrease.
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