How to Figure Out the Payoff on a Second Mortgage
When times get tough or there is a sudden need for cash, people can borrow money based on the equity in their home. A second mortgage is typically subordinate to the first mortgage, meaning the first mortgage gets paid before the second mortgage if the homeowners default. It is possible to pay off the remaining balance on a second mortgage all at once. To do so, a homeowner must calculate the amount of remaining principal. The amount of remaining principal equals the amount needed to pay off the second mortgage. For our example, we'll consider a homeowner who has a second mortgage for $100,000 payable in 30 years. The interest rate on the second mortgage is 10 percent, and the homeowner has made a total of 50 payments.
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Instructions
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1
Determine the interest rate on the second mortgage. The mortgage company will disclose the interest or how to calculate the interest rate in the mortgage calculator. The mortgage company may also disclose the interest rate through account statements and in your online personal account.
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2
Divide the interest rate by 12. This calculates the monthly interest rate. In the example, 10 percent divided by 12 months equals 0.00833.
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3
Add 1 to the interest rate and then raise the sum to the power of the number of required payments. To determine the number of required payments, multiply the years of repayment by 12. For example, a 30-year mortgage equals 360 months, 30 times 12. In the example, 0.00833 plus 1 equals 1.00833. Then 1.00833 raised to the power of 360 equals 19.81381.
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4
Add 1 to the interest rate and then raise the sum to the power of the already-made payments. You can determine the number of payments already made by looking through receipts for old payments, by using the book of required payments some mortgage companies provide or by using online account records if the company provides them. In this example, 0.00833 plus 1 equals 1.00833. Then 1.00833 raised to the power of 50 equals 1.51403.
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Subtract the number calculated in Step 4 from the number calculated in Step 3. In this example, 19.81381 minus 1.51403 equals 18.29978.
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6
Subtract 1 from the number calculated in Step 3. In the example, 19.81381 minus 1 equals 18.81381.
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7
Divide the number calculated in Step 5 by the number calculated in Step 6. In this example, 18.29978 divided by 18.81381 equals 0.972678.
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Multiply the original loan balance by the number calculated in Step 7 to determine the remaining principal needed to pay off the loan. In this example, 0.972678 times $100,000 equals $97,267.80 of remaining principal.
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