Billeater: Pay Off Your Loan in Half the Time with a Mortgage Calculator

By BilleaterGuest Blogger(view all posts by Billeater)
at 11:36AM Wednesday September 1, 2010
under Personal Finance

Before the foreclosure crisis, people would have no problems buying a home with a 30-year loan. But since the foreclosure crisis, people are looking at their debts in a much different way. Many people know someone who is going through foreclosure, or they have been watching the news, and reading the newspapers. They know how volatile and frightening the financial market has become, and they are beginning to become less secure in a future that they once believed was solid.

And, with rates so much lower now, many can afford to pay a 15-year monthly payment just as easily as they used to pay a 30-year mortgage. The interest rates for most fixed rate mortgages are now under four percent. But that doesn't necessarily mean refinancing is the way to go. Not everyone has the stellar credit banks want these days to get a loan in the first place. What to do? Keep your current mortgage and pay it in half the time.

Limitations of a 15-Year Fixed Rate Mortgage Plan

Paying a home in 15 years may not work for everyone. But a 30-year mortgage gives you the wiggle room of a smaller payment when you need it. In many cases, a 15-year refinance is barely worth the closing costs.

For example, if you owe $250,000 at 6%, your monthly payment, not including taxes and insurance, would be $1,498.98. If you paid an additional $615 per month, you would pay off the loan in 15 years. If you have excellent credit and can get a 4% re-fi on 30 years, your required payments drop down to $1,193.54 and the extra you need to pay it down drops to $600. The savings on your refinance? $320.44 for 15 years, or $4,806.60. That's about the same cost of refinancing a loan, so sticking with the one you have makes an awful lot of sense.

Here's how to do the math on how much more you must pay every month:

Go to your loan statement and find your monthly payment, less insurance and taxes. Remove any PMI charges as well, so that you are looking at the amount you pay every month just for principle and interest.

Now look at the chart to the right and find your interest rate. Multiple your monthly principle and interest amount by the factor shown. The resulting number is how much extra money you should pay every month to pay off a 30-year loan in 15. Of course, if you are part way through your loan, you need to take it another step.

Figure out the number of months left in your loan. If you have a 30-year loan, you make 360 payments overall. If you have already paid 10, you need to adjust your figures as follows:

Multiply the number of payments made times the extra amount you calculated in the previous step. Then divide that amount by the remaining months on a 15-year (180-month) loan and add the total to the original extra payment amount.

Here's a quick example to clear up any confusion:

Monthly Principle and Interest Payment: $1,200
Interest Rate: 4%
Factor from Chart: .56
Extra Payments: $672

Number of payments already made: 13
Payments remaining: 167 (180 minus 13)
Payments made times extra payments: $8,736 Divided by remaining payments: $52 ($8,736 divided by 167)
Amount of extra payments for remaining months: $724

You can also use various online loan calculators through a search titled, "extra payments mortgage calculator"' if your loan doesn't fit within these parameters or you want to start your 15 years now, not retrofit it to your current loan.

Have you considered refinancing recently?

Jessica Bosari writes for the money-saving site, Billeater.com. The site is devoted to helping people reduce expenses, save money and find great deals. Pay Billeater a visit for more money-saving tips!