Monthly Interest Rate: The monthly interest rate is calculated from the annual interest rate and the compound period. For example, to enter "10 years + 3 months", enter the following formula: =10+3/12įor Canadian mortgages, the definition of "Term" is different, so for Canadian mortgages you may want to change this label to "Amortization Period." You can enter a formula to a specify the number of months. If you enter your current mortgage balance in the Loan Amount, then enter the number of years you have left on your mortgage. Mortgages usually have 15 or 30-year terms. Term of Loan (in Years): The total number of years it will take to pay off the mortgage. This calculator assumes a fixed annual interest rate. You can also enter your current balance, if you also adjust the Term of Loan to be the number of years left to pay off the mortgage.Īnnual Interest Rate: This is the rate that is usually quoted by the lender. Loan Amount: This is the amount that you have borrowed. Canadian mortgage rates are quoted based on a semi-annual compound period (enter 2 for Canadian mortgages). US mortgage rates are quoted based on a monthly compound period (enter 12 for US mortgages). Lock in today's low rates and save on your loan.Compound Period: The number of times per year that the quoted annual interest rate is compounded. The Federal Reserve has hinted they are likely to taper their bond buying program later this year. Homeowners May Want to Refinance While Rates Are Low If your house appreciates in value, you can make an additional profit. If the value of your home drops, you can protect yourself against losing money. Though it may not be necessary, it can help you to build more equity in your home in case of fluctuations in the housing market. Tax refunds, investment dividends, insurance payments and annual work bonuses can all be diverted to your mortgage to help you pay down the balance faster. That’s assuming that you make the $50 a month payment consistently and that you do not have an interest-only loan with a variable rate.Įven one-time payments can help you pay down your loan balance, since they go directly to the principle of the loan. For example, if you make an additional $50 payment per month on that $200,000 interest-only loan with a 4.5 percent interest rate, you will reduce the amount of interest you pay by $12,116.25 over the life of the loan, and you will gain $18,000 in equity. Whatever amount you pay can help you pay down the balance, and you can decide the amount based on your current financial circumstances.Įven small amounts can make a big difference. The difference between making extra payments and making a traditional mortgage payment is that you choose how much you pay, and you can change the amount each month if you choose to do so. That way, when you are ready to sell, you aren’t taking as big a risk in case your home does not appreciate as much in value as you originally anticipated. At the end of the loan term, you would owe more than when you started it.īy making an extra payment toward your mortgage each month, you can help to pay down your principle, helping to create a buffer against fluctuating mortgage prices. In some cases, you may even develop a negative amortization, not paying the full interest on the loan in pursuit of paying even lower monthly payments. The primary drawback of an interest-only loan is that you don’t build any equity while you are paying it. Others may choose them because they plan to flip the home for a profit within a relatively short time, and they don’t want to spend more money than they have to before the sale. Some people may choose them in the beginning so they can afford a larger house before they start making more money at work or get the big promotion they were expecting. People choose interest-only loans for a number of reasons. With the interest-only loan, you save yourself hundreds of dollars per month. With a conventional 30-year, fixed-rate mortgage with the same interest rate, you would pay $1,073.64 per month. As a result, you lower your payment as much as you possibly can.įor example, if you have a $200,000 loan with a 4.5 percent interest rate, you will pay $750 a month with an interest-only loan. Just like the name says, you only pay the interest on the loan, rather than the principle. Interest-only loans offer a flexible financing option for those who need to reduce their monthly mortgage payment. Making Extra Mortgage Payments on an Interest-Only Loan
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