Refinance Your Mortgage Without Resetting Your “Payback Period”

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When a bank makes a fixed-rate, principal + interest mortgage, a borrower’s monthly payments is calculated using the principles of amortization (ah-mor-ti-ZAY-shun).

With respect to mortgages, amortization is the process of paying a loan to over time.

The Early Years Of A Mortgage Are Interest-Loaded

For homeowners, a mortgage amortization schedule’s most important trait is how it renders mortgage payments interest-heavy at the start. There is very little principal that’s goes back to the bank each month.

If you’ve ever looked at your mortgage statement after a few years and thought, “I haven’t paid this thing down a bit!”, it’s because of amortization. Amortization schedules are decidedly “bank-friendly”.

At today’s rates, it would take 20 years to reduce the 30-year, fixed-rate mortgage’s amount owed by half.

Having said that, amortization schedules can benefit to homeowners, too. Because mortgage interest is often tax-deductible, the early, interest-heavy years of a loan can provide larger tax benefits than the loan’s later years.

Furthermore, an amortization schedule can be accelerated with “extra” mortgage payments.  Years can be shaved off a loan’s life with just some basic planning.

Comparing Mortgage Payback Schedules

Here’s some stats. Comparing different 0,000 loans at a mortgage rate of 5 percent, after 10 years:

• A 15-year mortgage balance is reduced by 58 percent
• A 20-year mortgage balance is reduced by 38 percent
• A 30-year mortgage balance is reduced by 19 percent

After 15 years of payback, the numbers look similarly disproportionate:

• A 15-year mortgage is paid in full
• A 20-year mortgage balance is reduced by 65 percent
• A 30-year mortgage balance is reduced by 32 percent

And, meanwhile, depending on interest rates, amortization schedules will be skewed in more, or less, in favor of the bank. Higher rates increase the interest payments; lower rates increase the principal payback.

Today’s low rates favor the homeowner.

Get A Personal Amortization Schedule For Your Mortgage

Amortization is tricky, but it’s easy to make sense of the final numbers once you’re looking at them.

If you’ve got an existing mortgage and want to see what extra monthly payments will do to your payback period, or want to know how to keep your “payoff period” on track after a refinance, .

I answer all my own emails and am happy to help.