Spending Smarter - Mortgage Savings Calculator: Definitions

(Calculator | Example | Definitions | Application Notes)

	Current Mortgage, Remaining Term How many months before your mortgage is up for renewal? Current Mortgage, Monthly Payment How much do you pay each month for your mortgage? How to calculate your monthly payment if: you make weekly mortgage payments: multiply your weekly payment by (52÷12). you make bi-weekly mortgage payments: multiply your bi-weekly mortgage payment by (26÷12). Take note that making weekly or bi-weekly mortgage payments will save you interest, but this is not reflected in the Mortgage Savings calculator. Current Mortgage, (annual) Interest Rate APR with semi-annual compounding. The number will be converted, by the program, into an appropriate monthly interest rate which will be used for all mortgage calculations. Current Mortgage, Remaining Amortization Period You must remember the original number of months over which you amortized your payments, and then subtract the number of months that have gone by. In other words, this cell captures the number of months until your mortgage will be entirely paid off, assuming you continue your current payments at the current interest rate. Current Mortgage, Outstanding Balance If, instead of the remaining amortization period, you know the current outstanding balance, please input the number here. Months of Interest Penalty for Breaking Mortgage Most mortgage contracts cannot be broken (or prepaid) unless you pay a penalty. The penalty is often stated in terms of the interest the bank will lose by allowing you to prepay. If there is no penalty, this will be zero. For example, some banks (contracts) allow you to prepay a certain amount, or increase your monthly payments, without incurring any penalties Dollar Value of Penalty to Break Mortgage In some cases, the penalty for breaking the mortgage is listed as a dollar amount, as opposed to a number of months interest. For example, you might have to pay $3,000 to break the mortgage prior to maturity. If, indeed, there is a penalty, and you can't negotiate it down (to zero) then input the amount of the penalty in this cell. However, if the penalty is stated in terms of a number of months interest, that should go in the above cell. Desired Lump Sum Payment to Reduce Mortgage If you have some "extra" funds sitting in a low-interest bank account or under your pillow, you might want to apply them to reduce your outstanding mortgage balance. This program will allow you to see the impact - on your monthly payments - of paying down some of your mortgage. New Mortgage, (annual) Interest Rate It is quite possible that if you BREAK your mortgage, you will be able to lock-in a lower mortgage rate. Thus, even if you must pay a penalty, it might make financial sense. New Mortgage, desired Amortization Period In how many months would you like to pay-off your mortgage? The program will tell you how much you have to pay each month, in order to pay it off in the desired time frame. New Mortgage, desired Monthly Payment You might be interested in accelerating your monthly payments, by paying more each month. The program will tell you how many months of payments you will save by using this strategy. You can compare this to the current remaining amortization period. Current Outstanding Mortgage Balance This captures the total amount that you OWE on the mortgage. In theory, and ignoring penalties, if you had this amount available in cash, you could pay-off your entire debt. Current Amortization Period If you continue making the same monthly payments and the interest rate remains the same, you will pay off the entire mortgage within this number of months. How much interest will you pay this month? Each month, part of your payment is interest, and part is capital. This cell computes the amount of interest you will be paying this month. The remainder, goes towards paying down your principal. Total Dollar Amount of Penalty: This cell reports the amount of the penalty. It either computes the penalty using the interest method, or it simply lists the number you input above. New Mortgage Balance to be Financed Once we factor in the penalty, if any, and the amount you want to pre-pay, if any, this cell will compute the total amount you must finance. New Monthly Payment: If you re-finance your mortgage, over the new desired amortization period and at the new interest rate, this will be your required monthly payments. Compared to the old payment, how much will you save/lose per month? This cell compares the new payments to the old payments. How Much Will You Save/Lose over Remaining Term? If the saving is substantial, it is worth breaking the mortgage, and NOT waiting to maturity to re-finance at the lower rate. Note that this number is a present value of the difference in the two payments, and is NOT simply a product of the savings by the number of months remaining in the term of the mortgage. New Amortization Period: Assuming you make the desired monthly payments at the appropriate monthly rate, how long before you will pay-off the entire mortgage?