Mortgage Payment Reducer

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Mortgage Payment Reducer

The goal of any purchase is to pay as little as possible. Your home is no different. When you take out a 30-year fixed rate mortgage, you will be paying nearly twice as much in interest as you will pay towards the loan (depending on your interest rate). Many mortgages do not have a prepayment penalty. This means that consumers can pay the remaining balance on their mortgage without incurring any expenses. Payments made in excess of the required payment are usually applied to the principal balance of the loan. Ultimately, prepayments reduce the term of the loan. The Payment Reducer application provides several methods of calculating prepayments in order to achieve a particular goal. For example, users may want to payoff the mortgage balance by a target date.

There are eight different approaches to assist you with the goal of repaying a mortgage before the original term expires. Each one of these methods will save you interest because it will take you less time to pay off your mortgage.

Want to know a little more before you continue?

If you continue on, we'll try to explain how each of the pre-payment options works.

Here are the reduction methods we use

1 Additional Payment (End of Year)

If you select this method, the application will assume that there are 13 payments each year, the twelve regular payments plus the additional payment at the end of the year. Making the payment at the end of the year will not reduce the term as rapidly as if the payment were made at the beginning of the year.

1 Additional Payment (Beginning of Year)

This method is similar to the previous method except that the payment will be applied at the beginning of the year. Making the payment at the beginning of the year will reduce the term more rapidly than making the additional payment at the end of the year.

Additional Amount per Month

Once you select this method, you will need to enter the additional amount that you will send to the lender each month. Once you enter that amount, the application will calculate the results.

Additional Amount - End of Year

This method will allow you to enter a lump sum amount at be paid at the end of every year. This method might be effective if you receive a bonus at year end. You will need to enter the additional amount per year.

Additional Amount - Beginning of Year

If you select this method, you will need to enter the additional amount that will be paid at the beginning of the year. This method will reduce the term faster than paying an additional amount at the end of the year.

Double Principal

Selecting this method will require that you remit an amount equal to the principal payment with every payment. This requires that you have an amortization schedule that you can follow or the lender must identify the principal portion each payment. The effect of using this method is to reduce the term by exactly one half. For example, a 30 year mortgage will be paid in 15 years. Note that towards the end of the mortgage, the principal payments are high because of lower interest charges.

Desired Term

This method allows you to select the desired term (how long until you pay off the mortgage). For example, if you were planning to retire in 12 years and you wanted the mortgage paid at that time, you would enter 144 (12 years X 12 payments per year). The application will then calculate the required monthly payment to pay the mortgage in 12 years.

On to the Payment Reducer Calculator

or go to the All Tools Menu