A pay ahead mortgage calculator, also known as an early mortgage loan payoff calculator, or early payoff calculator, allows homeowners or prospective homebuyers to determine financial benefits of paying loans off early via extra payments.
This type of mortgage calculator is one of many available mortgage calculators, and can be found for free online, in financial software free trials, and if one is willing to pay for financial software, within the purchased financial software. This article will discuss pay ahead mortgage calculators in terms of 1) benefits of the mortgage calculator, 2) important factors to consider, and 3) mortgage calculator input variables.
Benefits of pay ahead mortgage calculators
There are numerous advantages to using a pay ahead mortgage calculator, however, if one has specific mortgage calculations goals, it may be advantageous to cross-reference results with multiple mortgage calculators such as an amortization calculator, 2nd mortgage vs PMI calculator, Home Equity Line of Credit (HELOC) calculator or mortgage refinance calculator. In some cases, a pay ahead mortgage calculator may not be the most beneficial calculator to use in which case one of the above calculators may be more helpful.
Depending on the mortgagee's goals, any one of these calculators may be helpful in determining the best use of payment. For example, paying off a loan early may not have the same financial benefit as refinancing at a lower rate if the lower rate is low enough. In such cases it can be useful to compare the two different scenarios using both types of calculator. A few of the advantages of early mortgage loan payoff calculators are the following:
• Saves time
• Determines savings
• Helps forecast budget expenses
• Recreates loan amortization
• Allows early pay off comparison
Important factors to consider
Pay ahead mortgage calculators may or may not be worthwhile. For example, if the mortgage contract does not allow early payoff, the advantages computed by the early mortgage loan payoff calculator may be inaccurate. Moreover, when an early payoff is allowed by the mortgage contract, it may be disadvantage to utilize the option due to other potential gains with the same money.
For example, if the mortgage amount is $165,000 30 year mortgage at 6% the total payoff with interest will be $356,133.60 according to bankrate.com free mortgage calculator. Moreover, early payoff with $100.00 extra per month using the early pay off calculator computes a total amortized payoff of $309319.59 for a savings of $46,814.01 PLUS 6.33 years of time. That's a 13.15% savings + ROI on $46,814.01 invested for 6.33 years at 5% and compounded monthly = $73,152.48
Alternatively, if the mortgagee had not paid the extra $100.00/month into the early mortgage payoff and instead invested it for 30 years at a rate of 5%, compounded monthly using a compounding calculator, the mortgagee's total end value after 30 years would be $83,572.64. Thus in this case, it would be more advantageous to not pay off the mortgage early. An early mortgage payoff calculator can assist with these types of calculations.
The above and additional considerations one might want to keep in mind when using an early payoff mortgage loan calculator are listed below and include terms of the mortgage contract, conditional use of the calculator and any surcharges associated with extra payment processing by the mortgage financial service provider. Moreover, a mortgage contract should not have an early pay off penalty or disallowance clause in order for the mortgage pay off to be optimally worthwhile and/or possible.
• Mortgage contract
• Periodic percentage of interest paid
• Pre-payment charges or fees
• Opportunity cost
• Free or conditional use calculator
Pay ahead mortgage calculator input variables
When using a pay ahead mortgage calculator certain variables are needed. These variables include the total amount of the mortgage, the time length of the mortgage, the interest rate, type of loan etc. These variables are the base variables with which the extra payments are calculated against. For example, in the above example, the total pay off was $356,133.60 without extra payments, when extra payments of $100.00/month were added, the calculator re-amortized the loan pay off to include the extra payment.
Amortization adjustments can be done by hand by re-computing interest on the remaining balance after the previous month's payment and then reverse annualizing it to be the appropriate monthly amount. However this process is tedious and time consuming making the mortgage calculators quite helpful. Furthermore, by using an early mortgage loan payoff calculator, the mortgagee can compare calculations with bank estimates to ensure the amortization is recalculated correctly.
• Length of mortgage
• Interest rate
• Fixed or variable loan
• Amount of mortgage
• Extra payment amount
• Frequency of extra payment
Summary
Pay ahead mortgage calculators are a constructive financial tool that can benefit mortgagees by helping them determine if early payoff is worthwhile, compare different early payoff results, calculate expenses after the extra payments are incorporated into a budget and 4) provide quantitative results to use when considering investment planning.
Benefits of pay ahead mortgage calculators
There are numerous advantages to using a pay ahead mortgage calculator, however, if one has specific mortgage calculations goals, it may be advantageous to cross-reference results with multiple mortgage calculators such as an amortization calculator, 2nd mortgage vs PMI calculator, Home Equity Line of Credit (HELOC) calculator or mortgage refinance calculator. In some cases, a pay ahead mortgage calculator may not be the most beneficial calculator to use in which case one of the above calculators may be more helpful.
Depending on the mortgagee's goals, any one of these calculators may be helpful in determining the best use of payment. For example, paying off a loan early may not have the same financial benefit as refinancing at a lower rate if the lower rate is low enough. In such cases it can be useful to compare the two different scenarios using both types of calculator. A few of the advantages of early mortgage loan payoff calculators are the following:
• Saves time
• Determines savings
• Helps forecast budget expenses
• Recreates loan amortization
• Allows early pay off comparison
Important factors to consider
Pay ahead mortgage calculators may or may not be worthwhile. For example, if the mortgage contract does not allow early payoff, the advantages computed by the early mortgage loan payoff calculator may be inaccurate. Moreover, when an early payoff is allowed by the mortgage contract, it may be disadvantage to utilize the option due to other potential gains with the same money.
For example, if the mortgage amount is $165,000 30 year mortgage at 6% the total payoff with interest will be $356,133.60 according to bankrate.com free mortgage calculator. Moreover, early payoff with $100.00 extra per month using the early pay off calculator computes a total amortized payoff of $309319.59 for a savings of $46,814.01 PLUS 6.33 years of time. That's a 13.15% savings + ROI on $46,814.01 invested for 6.33 years at 5% and compounded monthly = $73,152.48
Alternatively, if the mortgagee had not paid the extra $100.00/month into the early mortgage payoff and instead invested it for 30 years at a rate of 5%, compounded monthly using a compounding calculator, the mortgagee's total end value after 30 years would be $83,572.64. Thus in this case, it would be more advantageous to not pay off the mortgage early. An early mortgage payoff calculator can assist with these types of calculations.
The above and additional considerations one might want to keep in mind when using an early payoff mortgage loan calculator are listed below and include terms of the mortgage contract, conditional use of the calculator and any surcharges associated with extra payment processing by the mortgage financial service provider. Moreover, a mortgage contract should not have an early pay off penalty or disallowance clause in order for the mortgage pay off to be optimally worthwhile and/or possible.
• Mortgage contract
• Periodic percentage of interest paid
• Pre-payment charges or fees
• Opportunity cost
• Free or conditional use calculator
Pay ahead mortgage calculator input variables
When using a pay ahead mortgage calculator certain variables are needed. These variables include the total amount of the mortgage, the time length of the mortgage, the interest rate, type of loan etc. These variables are the base variables with which the extra payments are calculated against. For example, in the above example, the total pay off was $356,133.60 without extra payments, when extra payments of $100.00/month were added, the calculator re-amortized the loan pay off to include the extra payment.
Amortization adjustments can be done by hand by re-computing interest on the remaining balance after the previous month's payment and then reverse annualizing it to be the appropriate monthly amount. However this process is tedious and time consuming making the mortgage calculators quite helpful. Furthermore, by using an early mortgage loan payoff calculator, the mortgagee can compare calculations with bank estimates to ensure the amortization is recalculated correctly.
• Length of mortgage
• Interest rate
• Fixed or variable loan
• Amount of mortgage
• Extra payment amount
• Frequency of extra payment
Summary
Pay ahead mortgage calculators are a constructive financial tool that can benefit mortgagees by helping them determine if early payoff is worthwhile, compare different early payoff results, calculate expenses after the extra payments are incorporated into a budget and 4) provide quantitative results to use when considering investment planning.
These types of calculators are most readily available online at sites such as bankrate.com, however some websites do require an email to receive computed results. Some considerations such as extra fees, and mortgage contract requirements should also ideally be considered when weighing the pros and cons of early mortgage payoff. Using a pay ahead mortgage calculator is relatively easy and only requires the input of a few commonly known variables.
Sources:
1. http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
2. http://www.mortgagecalculator.org/calculators/index.php
3. http://www.mortgageloan.com/calculator/mortgage-payoff-calculator
4. http://www.calculators4mortgages.com/mortgage-calculator/early-payoff-pre-pay
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