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Author: admin | Category: Lease Car Calculator | Date: 06.12.2014

Once you have provided these values, this free online Amortization Schedule Calculator will calculate your amortization schedule for you. Once you have your basic amortization schedule, you can start throwing in additional payments in there to see how it effects your amortization schedule, and your payoff date.
Using one more more of the above options, you can get your amortization schedule recalculated and see how it changes. NOTE: This article is written for owner-occupants who would otherwise invest in the market. The reigning champion in the ring, returning to keep his heavyweight title, is the “Keep the Mortgage” fighter.
And whether or not you’re consciously aware of it, every person who holds a mortgage and invests also plays this game. If you dumped a bunch of cash into an S&P 500 index fund in 1990 and didn’t touch it for 20 years, you would have earned 9 percent annual returns over the long-haul. Earning 10 percent on Facebook stock is different than earning 10 percent in a savings account. Earning 12 percent on a dingy rental property in a high-crime area isn’t the same as earning 12 percent on a sparkling rental property in a high-end, luxury resort.
Mortgage interest is calculated as simple interest, meaning that it’s a straight-line rather than a compounding figure. But there’s a curveball: Mortgage interest is “amortized,” which means that during Year 1 of a 30-year mortgage, the vast majority of your payments are applied to the interest, rather than the principal.
In Year 29, the tables are turned: You’ve repaid almost all the interest, and the bulk of your payments are now used for equity paydown. Okay, now climb into our Time Machine, speed ahead to the year 2044, and look at our payments.
Notice how the majority of payments are applied towards principal, with only $5 on interest at the end? Thanks to inflation, you’ll repay your loan in cheaper-and-cheaper dollars over time. In 2044, your mortgage payment will still be $1,400, but thanks to inflation, that money will only cover a quick hop from New York to Chicago. For the sake of a simple example, let’s say you paid $10,000 in mortgage interest this year, and your overall tax rate is 25 percent.
This is one of the most compelling arguments I’ve ever heard for crushing your mortgage. Would you borrow a home-equity line of credit (HELOC) or a cash-out refinance, and put that money in the stock market? What’s the difference between borrowing against your home equity and putting your money in the market, rather than using that cash to build more home equity?
In your example, you are investing at the same rate of your existing mortgage, 5.375% FIXED, if you use your money to pay it down. The problem, though, is if you pour all of your extra money in your home to crush your debt you can be setting yourself up for future disappointment. Agressively save your cash flows until you have enough to pay off your mortgage balances in full…if you want. One other factor that weighs on the side of prepaying a mortgage rather than investing in taxable accounts that often is not mentioned in analyses of the issue is financial aid for college.
I bought my house just over a year ago, and with the first (awesome!) tax return this year I started my investment plan. Coming from the pay off the mortgage early camp, it’s nice to hear an unbiased review. My wife and I chose pay off the mortgage(rental) early for a couple of reasons, that’s what my wife wants! With all due respect, it was the business decision that almost caused you to lose your home, not the fact that you didn’t pay off the mortgage. Not using some of the money for risky, but profitable, investments also carries a risk – the risk of not receiving dividends and value increase. In a perfect and predictable world, you should get the largest possible loan and then invest the money somewhere where the interest received is greater than payed. One advantage of paying off properties sooner is that traditional lenders will only let you have 4 mortgages at a time, so having too many mortgages (aka too much debt) will limit your investing potential. The *benefit* of this is that right now, every additional principal dollar I can come up with, has a bigger effect on reducing the length of my loan period, than it will in the future, *because* my principal payment each month is so low. Someone on a PF blog pointed this out a few months ago – if my payment each month is $1000 and $300 of that is principal, then every additional $300 I can come up with each month, takes a month off of my loan period. I’m Todd, and I created Financial Mentor to give you a step-by-step blueprint for building wealth that actually works. The decision to pay off your mortgage early isn’t just about getting out of debt because complicated equations involving return on investment, time-value of money, and inflation are involved. In this article, I pull back the curtain exposing the many dimensions to paying off your mortgage early. The correct answer is not cookie-cutter, but must be custom-fitted to your personal financial situation. If you decide to pay off your mortgage early, there is no shortage of advice on how to get the job done. Paying mortgage principal early is a powerful money saver because small debt reductions compound dramatically over the life of the loan, thus eliminating many times the payment in interest. If you add just $100 to that monthly payment, you literally double the principal paid in the beginning, eliminate 108 payments over the life of the loan, save $39,900 in interest costs, and shorten the payoff time from 30 years to 21 years. Add Principal to Your Current Monthly Payment: Assuming your mortgage doesn’t have a prepayment penalty (check first), the simplest early payoff strategy is to just add principal to your monthly payment.
Biweekly Payment Schedule: Rather than make one mortgage payment per month, try making half the payment every two weeks.
Refinance to a Lower Interest Rate: Another strategy is to refinance to a lower interest rate mortgage while keeping the term (pay off date) the same. Refinance to a Shorter Term: Rather than pay over a 30 year amortization, try reducing the term to 15 years. Downsize to a Lower-Cost Home: Changing homes isn’t for everyone, but I would be remiss as your financial coach to exclude this strategy. The key point to notice about all these early payoff strategies is how they aren’t mutually exclusive. For example, you could downsize your home while financing that less expensive home at a lower interest rate on a biweekly mortgage.
The only limit to how fast you escape the bondage of mortgage debt is your creativity and dedication to this noble cause. Now that we know how to pay off your mortgage early, let’s look at the benefits to following this strategy.
Save Money: The first and most obvious reason to pay off your mortgage early is it can save you tens of thousands of dollars in interest costs.
Reduced Cost of Living: For most people, mortgage payments are your biggest monthly expense after taxes.
Get Rid of PMI: When you accelerate paying down principal, your home equity will reach a threshold where PMI should no longer be required. Asset Protection: Many states have laws that protect home equity in the event of lawsuit or other legal proceeding. Retirement Planning: A free and clear home takes on additional significance for near retirees. In short, there are many benefits to paying off your mortgage early – and some are very compelling! Before you break out the champagne and burn your payment book, it’s important to consider the downside to paying off your mortgage early.
Savings Are in Cheap Dollars: A key point to consider is how all the savings you are expecting only come after the mortgage is paid off, meaning those savings must be discounted for inflation. Lost Diversification: This one is “the biggie” so pay close attention… Most investor portfolios are denominated in their domestic currency and thus carry the risk that inflationary government policies will depreciate their investment purchasing power over time.
In other words, the way mortgage financing works is you borrow (short) your currency and use the proceeds to buy an inflation adjusting asset (real estate). Few people understand how conventionally financed real estate is little more than a leveraged play on inflation.
The importance of this financial fact cannot be overstated given today’s record government indebtedness and overt government policy directed toward creating inflation. I repeat… this is a HUGELY IMPORTANT factor in deciding to pay off a mortgage early or not! This inflation calculator (which likely understates inflation’s true impact) shows you how the Federal Reserve has destroyed more than 95% of the U.S. In a February interview with CNBC, Warren Buffett called mortgaged real estate “as attractive an investment as you can make”. He’s telling you about the value he sees in locking long-term, low cost interest financing on an inflation adjusting asset. When you prepay your mortgage, you give away that advantage, so tread carefully on that decision.
What’s important to note about this entire list of negatives is how they aren’t intuitively obvious. The list of positives to paying off your mortgage discussed earlier are easy for anyone to see, but the negatives require a fair degree of financial sophistication – from esoteric tax strategy to long term inflation effects, short hedges on currency, and discounted present value equations. In short, the decision to pay off your mortgage is an intellectual battle where the emotional-intuitive desire to be debt free is matched against the intellectual realities of modern finance. The next step is to give you a structured way to sort these issues so you can make order out of chaos and formulate a well-reasoned decision as to whether paying off a mortgage early is the best decision for your situation – or not.


Personal Finance Considerations: This is a decision between paying off your mortgage early or taking care of other personal finance issues first that better reflect your personal values. Investment Return Objectives: This is a decision between paying off your mortgage early or investing the difference. I’m a firm advocate of getting your financial foundation in place before pursuing more advanced financial strategies. Guaranteed 50% Return: Many employers still offer 401(k) retirement plans that include employer matches – typically 50% of every dollar you put in up to 6% of annual pay.
Maximize Tax Deferral: Even if your company doesn’t offer a 401(k) plan, it may make sense to maximize tax deferred and tax free retirement savings before paying off your mortgage. Pay High-Interest Debt First: Even after maxing out all your retirement savings options, it still may not make sense to pay down your mortgage early when you have other debt. Financial Stability: Once you’ve maxed out your retirement plans and paid down your high-interest, non-deductible debt, you may want to consider building a 3-6 month cushion should unemployment strike. Insurance and Financial Security: One of the main goals for paying off your mortgage early is financial security, but there are many dimensions to financial security beyond just being out of debt.
The answer to the “pay off mortgage or invest” question is actually quite simple – whatever gives you the highest after tax return on your money is the right decision.
Financial advisers will quickly point to research showing long-term historical returns for a low cost index portfolio around 8% (+ or – depending on assumptions), match that against much lower mortgage rates (as of this writing), and proclaim immediate victory… but it’s not that simple. The problem is the future is not the past and returns vary, but mortgage interest saved is a bird in the hand. In other words, you’re left deciding between the certainty of mortgage payoff versus the uncertainty of investing.
Life throws obstacles our way, plans change, stuff happens, and that’s just the way life works.
It’s foolish to make long-term plans in an intellectual vacuum that fails to account for the random nature of life. Flip the Logic: If you choose to invest instead of paying off your mortgage then consider this question – would you be willing to refinance the equity out of your mortgage (thus increasing your debt) to add to your investment accounts?
No Discipline: For every 10 people who claim to be making the minimum mortgage payment and investing the difference, I would hazard a conservative guess that more than half fail to follow through on the investment part of the equation.
I suppose the best way to conclude this lengthy analysis is by sharing what I’ve chosen to do with my own mortgage(s). However, in general, my investments outperform mortgage interest, so it makes sense for me to prioritize investment capital. Fast forward to current times, and I’m several years into a 30 year mortgage on my current home that, prior to writing this article, I would have refused to pay off.
The interest rate is pathetically low, tax deductible, will likely end up below the inflation rate over the life of the loan, and it gives me some measure of inflation protection with a small short position against the dollar.
So I’ve been at both extremes – pay it off fast, and never pay it off – only to now end up somewhere in the middle of the road going forward. Because my retirement and kid’s college are fully funded, I don’t need to prioritize those accounts.
The math is clear that my highest return is with investing, but I’m also emotionally connected to having no debt and love the freedom of minimizing my cash flow needs. In summary, I’m not willing to dedicate any of my investment capital to paying off my mortgage, but I’m also not willing to leverage my house to increase investment capital. So there you have it – I’ve personally lived at both extremes of the decision and now stand firmly in the middle. How has this analysis helped you sort through the decision and what conclusion did you reach?
The conventional approach used by experts to figure how much money you need to retire is fundamentally flawed. This book takes you behind the scientific facade of modern retirement planning to reveal simple, robust solutions that will help you retire sooner and with greater financial security.
The amortization schedule will show your payment, principal paid, and interest paid for each month for complete duration of your mortgage. This option is really good, and it is sometimes enlightening to see how even a small additional monthly payment can greatly reduce your payoff date. If you don’t want to use an online calculator, you can also try an excel based amortization schedule calculator. In finance, there’s a concept called “risk-adjusted return.” It’s a fancy way of saying that you can’t just stare at your returns in a vacuum – you have to look at returns within the context of risk. Notice how the bulk of the payments are applied to interest, with only a tiny sliver going to the principal?
If you can wipe out your current mortgage in a short timespan (before rates will rise), you might be better off clearing the slate so that you can qualify for another mortgage. How many will spend the cash on steak dinners, pedicures, brand-new cars, handbags, and trips to Aruba? Imagine that I’ll give you the $2,000 to cover closing costs, if you take a massive loan against your house and shove all that money into the stock market. Would I be willing to borrow against home equity and use that money to buy more rental properties? Image, $100,000 into your debt demolition and a nicely new 5 unit apartment complex comes on the market. In the meantime, if another property comes on the market you’ll have the ability to pay it instead. Yes, federal college aid models look at the balances in your taxable investment accounts, but don’t look at your home equity. A main risk, of course, is when stuff happens – will I hit that account to replace my car, do home maintenance, etc.?
Had you had the cash available when you had your unfortunate episode (instead of putting it in a business or a home) you probably would have been in a better financial position. In rental-property investing, I have the ability to manage the costs more tightly and make the operation more efficient.
After paying off my mortgage in 2 years, I have freedom that those with a mortgage do not have. More than 15,000 people have already used this blueprint to jumpstart their financial freedom. We all want the security of owning our castle free and clear with one less expense to deal with.
You can end up with “Alice in Wonderland” scenarios where debt is the cheapest solution, and a dollar paid tomorrow might actually be preferable to debt freedom today. The objective is to balance your intuition with financial savvy so you can make a smart decision.
You could try a one-time lump sum where you put the proceeds from selling a boat, motorhome, or unused jewelry to good use.
Since there are 52 weeks in 12 months, that causes 26 half-payments or 13 full payments instead of the usual 12 – one extra payment per year.
The monthly payments will be higher, but the interest rate is usually lower, thus offsetting some of the monthly outflow. Then you could sell that boat and jewelry you never use, putting those lump sums toward the mortgage, while also dedicating this year’s raise to additional monthly principal payments. It gives you a warm-fuzzy feeling to know you have a secure place to live, and you won’t be put out on the street at the first temporary setback in employment.
Without a mortgage payment, you can save more, work less, or take that dream job you always wanted but couldn’t afford because of the lower salary. This saves you money long before the mortgage is paid off, and allows you to accelerate the principal pay-down while still making the same monthly payment.
If you are entering retirement with a fixed income (Social Security, pension, fixed annuity), then it can be a real benefit to pay off all debt rather than put money in fluctuating investments.
You get the imputed rental value of a place to live and the immediate return of eliminated interest expense. It’s big enough to get excited about, yet tangible enough that you can wrap your head around it. This isn’t the slam-dunk decision it appears at first glance because of some complicated financial issues. Yes, mortgage interest paid is generally deductible on your tax return if you itemize, but there are some important “caveats” to this deduction worth considering: (1) The rules are complicated and may cause you to lose some of the deduction you thought you were getting.
For example, if you’re in a combined state and federal tax bracket of 35%, then a 6% mortgage could have an effective cost under 4%. This is a throwback to feudal times where the king (“royal = real” relating to the latin for “king” connecting real estate to royal estate) was the owner of all land and received “tax” for the right of possession.
A residential real estate mortgage is the only practical way for most people to short their domestic currency and hedge against inflationary economic policy.
If that ended up being true (nobody has a crystal ball), then a bizarre financial situation is created where you are literally paid to borrow money in real terms (after inflation), even though you’re paying interest every month.
This means you lose the ability to be short today’s more valuable dollars and repay them with depreciated dollars in the future. The last time this strategy paid off was in the inflationary 1970’s when the Savings and Loan industry went bankrupt for being on the wrong side of the transaction. The concepts are complex and sophisticated once you get past the obvious reasons for wanting to get out of debt. This decision only comes into play after the personal finance issues in the previous step are satisfied first. Your wealth can only grow as high as your financial foundation can support (similar to how a skyscraper’s height is limited by the depth and strength of its foundation).
This guaranteed 50% return on investment is pretty hard to beat, so it usually makes sense to make sure you are maximizing this benefit before prepaying your mortgage.


Granted, tax issues are complex and vary based on individual circumstances, so it’s impossible to make a blanket statement, but every tax deferred savings opportunity you don’t use is lost forever and can’t be recovered because annual limitations apply. The reason is most other debt will be at a higher interest rate – particularly credit card debt where the interest is much higher and not deductible. Some naysayers claim a home equity line of credit serves the same function, making this step unnecessary. For example, medical bills are a primary cause of bankruptcy, so does it make more sense to increase your medical insurance coverage before paying off your mortgage? I’m not going to get into a big discussion about strategic defaults here, but suffice to say there may be more secure assets for you to invest in than a house that is underwater. With that said, you would be hard pressed to find 20-30 year periods (the life of a typical mortgage) where an investment portfolio would not provide a higher return than recent mortgage interest rates.
Unless you have a direct connection to the Higher Power, then you’re stuck right back where you started with a decision between a guaranteed (but low) return for prepaying your mortgage, versus an unknowable but potentially higher return for investing.
While financial science provides a relatively clear answer (investing should provide the higher return over the long term), this is really an emotional decision about your risk tolerance, confidence in the future, and belief in the science of investing. We humans aren’t computers who implement our brilliant plans with mathematical precision.
When your home is paid off, it’s easier to weather these storms with a minimum of personal adversity. I could have paid off the mortgage in 2007 instead and seen a decline in investment values the following year. From a pure logic standpoint, that makes no sense: I’m not willing to liquidate investments to pay off the mortgage, and I’m not willing to increase the mortgage to fund investments. For that reason, my decision is to funnel a portion of increased revenues from this business toward prepaying the mortgage, even though it’s technically irrational from a return on investment perspective. The best part of this free online Amortization Schedule Calculator is that it gives you option to add extra payments to your schedule payments, and see the effect of that the payoff date, and on the complete amortization schedule. That same $1,400 could buy you roundtrip airfare from New York City to Christchurch, New Zealand. Who knows, you may be able to pay cash for the next investment property if you save aggressively enough. And rental properties are much easier to understand than complicated corporate earnings statements.
No matter which option I choose, I’ll always wonder how my life might have changed if I had picked the other one.
Alternatively, you can add a little extra every month by sending your raise or bonus directly to the mortgage company.
Another variation on this theme is to keep your 30 year mortgage, but make your payments as if it were a 15 year amortization.
The smaller mortgage principal means you can be debt free faster using the same monthly payment.
Also, retirees sometimes use home equity as an estate planning strategy to protect assets for the surviving spouse should one partner consume all available resources in a prolonged illness or nursing care facility. This allows you to reduce financial variables and more reliably match forecasted income to expenses. The certainty of this return stream is a huge benefit for investors who feel beat-up by unreliable financial markets that supposedly will pay more… but may not. This means two things: (1) Higher cost, non-deductible debt should be paid off first, and (2) long-term investment returns will likely provide a higher return on your capital as evidenced by Ibbotson and Associates research showing a diversified portfolio returning in the 8% range.
Using this present value calculator, you’ll see that $1,000 saved 25 years into the future is only worth $375.12 in today’s terms at a 4% inflation rate. Today, our local governments are the modern equivalent to feudal lords who collect property tax annually. If that time period is too long, then look at various 30 year time periods (the life of a mortgage) for similarly dismal stats. Warren is a pretty successful investor who has some clue on these matters, so strong statements like this are worth listening to. Homeowners literally laughed all the way to the bank with ridiculously cheap mortgage payments on appreciating real estate.
The confusion results from the tug-of-war between emotion and intellect trying to sort through the complex factors explained.
The thinking is that mortgage prepayments increase equity, thus providing a positive return while you don’t need the funds, but can still be withdrawn through a line of credit should you fall on tough times. In other words, an optional savings program that requires self-discipline is frequently no savings program at all.
In the late 1990s, I paid off my mortgage only to watch my investment portfolio double the next year while all that capital was tied up in my house. Now your effective return on investment is affected by the additional interest rate charged on the HELOC.
If you have a child that’s applying for college soon, you have a stronger reason to put your money towards mortgage pay-off. Then I took out a mortgage on this house when I had it paid off to buy a package deal of 4 houses which I’m slowly paying down.
The concept behind this strategy is you got by just fine without the money before, so you’ll never miss it if you never see it. Check out the details first because some mortgage holders offer this payment schedule without charge, and others will hit you with a fee.
When you continue making the same payment as before, all the extra will go to principal payoff. You won’t get the reduced interest rate of a 15 year term, but you also won’t pay refinancing costs either. In short, there are many situations where home equity can represent a more secure asset with special legal privileges when compared to other investments.
Additionally, after retiring, that mortgage payment can require pulling money from tax deferred accounts when that money would be better off left to grow.
Contrast this with retirement planning, which feels more ethereal and hard to grasp for most homeowners.
In other words, you have to discount all savings by inflation because the payments you avoid will be in depreciated dollars.
In other words, you always pay rent to someone whether the bank is out of the picture or not. The investment math often tilts in favor of maximizing every tax deferred investing opportunity available… before paying off the mortgage. Either way, developing a safety cushion for difficult times is a prudent step in building your financial foundation. Similarly, the Council for Disability Awareness claims you have roughly even odds of being disabled for 3 months or more at some point during your career, with 1 out of 7 workers being disabled for 5 years or more.
Contrast this with someone who places a 15 year, biweekly mortgage on their home, thus creating enforced discipline.
Regarding new income production, I’m fine with dedicating a portion of the revenues from this business toward paying off the mortgage rather than perpetually building investment capital while retaining debt.
Rather than repaying in full, repay it to a level where it would be possible to live with, for a long time during rainy periods.
I was able to buy another place for cash which has been paying off the other 2 properties I have seller financed mortgages with.
We may, like you, tap our equity to buy more rental properties, once our cash reserves are gone. I suggest you try using this bi-weekly mortgage calculator with extra payment capability to test both this early payoff strategy, and the previous one, to see how fast you can be free and clear!
The nice thing about this strategy is it doesn’t require any additional money out of your pocket to achieve the desired result (unlike the two previous alternatives). Some people prefer this variation for its increased flexibility and reduced cost, while others prefer the enforced discipline of the required monthly payment.
Finally, if your taxable income is reduced in retirement, it can reduce the benefit of the mortgage interest tax deduction, tilting the equation in favor of payoff.
If you’re not completely clear about this truth, just stop paying property tax for a few years and see what happens. I guess the logic is that I’m getting a diminishing emotional return on more investment capital when compared with less debt. But, for whatever reason, I’m also more comfortable doing that than borrowing money to put in the market. Either way, you can use this mortgage payoff calculator to estimate the monthly payment required to be free and clear for any date you choose. In short, there are many tax rules and situations where you won’t be able to fully utilize the mortgage interest deduction. The truth is your monthly payment is merely a question of degree and to whom – not whether it exists or not.
For economics geeks, it means I have a higher marginal utility on debt reduction than capital increases. I would NOT take a mortgage to invest in the stock market (even tho I have done fairly well on choosing stocks), it is just too risky, nothing in the market is a sure thing, no matter what anyone says. The rules are complicated, so talk to your tax professional if this issue is important to your decision.



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