# Mortgage/Loan Calculator

This calculator helps you find out the monthly payment for a loan or mortgage.

 Initial Principal Balance Annual Interest Rate % Duration of Loan Years Months Regular Payment Total Payments Total Interest Interest paid first year Principal after first year

When you get a loan to buy a car or a house, the payments are calculated so that the loan will be paid off in equal monthly installments over the life of the loan. After each payment, the amount of principal is reduced by the amount of the monthly payment minus the interest which is calculated on the remaining balance of the principal. Although the payment amount remains the same, the proportion of interest decreases every month as the principal is paid off. The first few payments are mostly interest and the last few payments are mostly principal, but the sum of the principal and interest is a constant amount.

Should you pay off your mortgage early?
This calculator will help you determine whether it is advantageous to pay off your mortgage or maintain the loan. Several factors need to be considered assuming that you have the cash to pay off the loan and that you are not going to need the cash for some immediate expenses:

• How much interest are you earning on your cash?
• How much interest do you pay on your loan per year?
• How much tax deduction do you get on your home mortgage?

Example of mortgage prepayment
Assume that you have a \$200,000 mortgage at 4.9% yearly interest and that there are 25 years left until the loan is paid. Also assume that you can invest the \$200,000 at 1.0% in a 3-year certificate of deposit, and that you are in the 30% tax bracket.

The calculator shows that during the first 12 months you will pay \$9,706.86 in interest, and over the 25-year life of the loan you will pay a Total Interest of \$147,267.17.  Since you are in the 30% tax bracket, the payment of \$9,706.86 for home mortgage interest will give you a tax deduction of \$2,912.06 thus reducing the cost of the interest payments to only \$6,794.80.

Investing \$200,000 at 1% interest, you would earn \$2,000 per year, but you would have to pay 30% tax, leaving you with only \$1,400 per year.

If you pay off your mortgage, you lose your \$2,912.06 tax deduction and your interest income of \$1,400 per year. However, you avoid paying \$9,706.86 in interest. The bottom line is that even though you lose the tax deduction on the home mortgage interest and the interest income from your cash, you come out ahead by \$5,394.80 the first year by paying off the mortgage. In the long run, you will avoid \$147,267.17 in interest payments, and if the value of your home increases, you will make up for the loss of interest income on your cash.

If you can find an investment that can earn as much interest as you pay for your mortgage loan, it may be advantageous to keep the cash instead of paying off the mortgage. But paying off the mortgage does not have to be all or nothing. If you just pay an additional \$200 per month to reduce the principal of the \$220,000 loan at 4.9% interest, you will reduce the time to pay off the loan by more than six years and you will save over \$40,000 in interest.