How to Calculate Extra Money Towards a Mortgage

Making extra house payments can add up to big savings.

Applying extra money toward your mortgage will save you money in finance charges and get the loan paid off faster. When your mortgage loan is paid off, you can use the payments to get rid of other debt. You can calculate how much extra money to apply by using an online tool called a mortgage calculator. To calculate the effect of extra payments toward a mortgage, you will need the terms of the mortgage--including the interest rate--and the balance of the loan.

Instructions

1. Find out the terms and conditions of your mortgage loan. If you have a 30-year mortgage with a balance of $100,000 with an interest rate of 7 percent, and monthly payments of $665.30 you can find out the effect of applying extra money toward the mortgage. This mortgage will pay off in 30 years, but when you add $500 extra to your monthly mortgage payment the loan pays off in 10 years.

2. Find out how much of a difference one yearly payment makes. If you pay $500 every year in the month of May until the loan is paid off it will take 25 years to pay off the loan instead of 30 years. That represents $39,918 that does not have to be paid, ($665.30 x 60). This money can be used for a number of purposes, including investing and saving.

3. Apply a one-time payment to the loan. When you make an extra one-time payment of $5,000 toward the loan balance, it will take 26 years to pay the loan off. This is a substantial savings in terms of the finance charges saved. Based on the mortgage calculator the amount of finance charges paid will be $110,037.21. Without the one-time payment, the amount of finance charges paid during the 30 year term will be $139,508.90. You save $29,471.69 in finance charges, ($139508.90 - $110,037.21).

References

• Bank Rate: Mortgage Calculator