# Mortgage Amortization Schedule Calculator

This calculator estimates the loan payment for a mortgage inclusive of property taxes, homeowners insurance, PMI & HOA fees. After you change any input the results are automatically calculated. When you have finished your calculation you can create a printable amortization schedule using the button at the bottom of the calculator. Further usage instructions are published in the second tab.

**Current San Diego mortgage rates** from our lender network are published under the calculator to help you calculate using real market data and obtain a favorable rate on your mortgage.

## Usage Instructions

### General Tips & Advice

If a the left column of a row contains a "$" you can enter the input amount directly in the right column as a dollar amount, or you can select prefilled percents from the drop down menus in the left column to automatically calculate the equivalent percent in the right column.

Change any input and the calculator will automatically update the monthly payments. Once you are done making adjustments, click on the "Amortization Schedule" button to quickly generate a printable loan amortization table of the loan's principal & interest payments. The calculator can be reset to its original state using the "reset" button. The square footage field is optional feature for people who want to calculate the cost per square foot.

### Creating a Printable Amortization Schedule

At the bottom of the calculator there is a button to generate a printable amortization schedule. Just above the button are entry fields for the date the loan is made. By default these dates are set to today, though you could set them to a past date or future date if you wanted to run different scenarios and see what you loan amortization will look like at various points in time.

### Current San Diego 30-YR Fixed Mortgage Rates

The following table highlights current San Diego mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.

## Understanding How Mortgage Amortization Works

When it comes to homebuying, most consumers choose the stability of fixed-rate loans. These come with the same principal and interest payments, which do not change even if general market rates rise. It ensures your monthly payments remain affordable throughout the entire loan. This is a practical choice, one that’s safe and manageable for you and your family.

But there’s more to fixed-rate loans than predictable payments. By understanding how loans amortize, you’ll have a better idea of how much mortgages truly costs. Knowing how amortization works can also help you plan your finances if you intend to pay your mortgage sooner.

Our article will discuss mortgage amortization and the different factors that determine monthly payments. We’ll explain how the amortization schedule is calculated, and how different terms and interest rates impact the cost of your mortgage. We’ll also discuss how making extra payments can help shorten your loan term.

### What is Amortization?

Mortgages derived their name from the word amortization, which shares the Latin root word *mors* meaning death. When a loan amortizes, it basically involves making steady payments throughout the life of the loan to pay off or eliminate debt.

Loan amortization is an accounting system that distributes payments evenly throughout a predetermined time. It is calculated in loans that come with a precise principal amount, interest rate, and loan term. The resulting monthly principal and interest payments remain fixed, making costs more manageable for borrowers. For this reason, amortizing loans are often used to purchase expensive property, such as homes and vehicles. This process guarantees your loan’s principal and interest balance is reduced to zero by the time your loan ends.

When you take out a fixed-rate loan, lenders create an **amortization schedule** to track your payments. This is a table that shows precisely how many payments you need to make on your mortgage. For instance, a 30-year fixed-rate mortgage requires 360 payments across 30 years. Meanwhile, a 15-year fixed-rate loan comes with 180 payments spread throughout 15 years.

An amortization schedule breaks down the following loan details:

- Date and payment number
- Beginning and ending balance
- Principal paid
- Interest paid

The amortization table indicates exactly how much of your payment goes toward the principal and interest balance each month. When you review this table, you’ll notice how the principal and interest ratio changes over time. During the first years of the loan, more of your payments go toward interest. However, during the latter half of your term, this ratio shifts. A larger portion of your payments go toward the principal. As the principal is reduced, the smaller interest payments get. As long as you do not miss payments, your mortgage should be paid within the agreed term.

To create a sample amortization table, use the above calculator.

The following is an example of a printable amortization schedule generated by the above calculator. It shows the first 12 monthly payments of a mortgage with a 30-year fixed-rate term.

When Negative Amortization Occurs

Some types of loans come with options that allow you to pay a portion of the interest you owe each month. This arrangement can be found in certain types of adjustable-rate mortgages. However, if the amount you pay fails to cover the interest you owe, this results in negative amortization. When this happens, the unpaid interest is carried over to your principal, which ultimately increases the amount you owe.

Negative amortization loans are risky because you can end up owing more on your mortgage than your home’s value. It puts your home at risk of foreclosure if you have trouble making payments. Even if you sell your house, the sales price won’t be enough to cover your mortgage.

A fixed-rate structure guarantees against negative amortization. This ensures your interest payments are adequately covered throughout the duration of the term. With each monthly payment, you’re sure the principal is reduced until your mortgage is paid off. Thus, more borrowers choose fixed-rate mortgages for stable payments.

What Makes Up Mortgage Payments?

Mortgage payments are comprised of two main parts:**Principal and Interest payments (P&I)** – This is the primary component of your mortgage that comprise payments you need to make to your lender. The principal is the actual amount your borrowed, while interest is the amount your lender charges to service your loan. Our article will focus on principal and interest payments to discuss how amortization works.**Escrow Payments** – These are other housing expenses that your lender pays on your behalf. It includes real estate taxes, homeowner’s insurance, and homeowner’s association fees (HOA). Most mortgage lenders require you open an escrow account for these payments. Note that escrow fees can increase over time even if your monthly P&I stays the same.

The principal, interest, taxes, and insurance or PITI costs add up to make your mortgage payments. To determine your total monthly mortgage payment, do not forget to factor in other housing-related costs such as insurance and property taxes.

### The Fundamentals of How Amortization Works

Fixed-rate mortgages come with three key components that determine your monthly payments. These variables are the following:

**1. Principal** – the loan amount you borrowed

**2. Interest Rate** – based on the annual percentage rate (APR)

**3. Loan term** – the length of time and number of payments

### Principal

Before applying for a mortgage, it’s important to gauge how much home you can afford. When lenders evaluate your mortgage application, they assess your credit score, income, and the overall strength of your financial profile. Lenders also evaluate your debt-to-income ratio, which is a percentage that compares your total monthly debts with your gross monthly income. Basically, if you have a lower debt-to-income ratio, or more income relative to debt obligations, you can secure a higher loan amount.

While you may qualify for a larger loan, note that a bigger debt will be harder to manage. This means dealing with higher monthly payments throughout your entire mortgage. For instance, you qualified for a maximum loan amount of $400,000 and you have enough funds for a $70,000 down payment on a 30-year fixed mortgage. You found good home in your preferred area priced at $350,000. Other houses are priced higher and close to your maximum qualifying loan amount.

If you choose the $350,000 home and put forward a $70,000 down payment, this will reduce your principal to $280,000. It will result in lower monthly payments and interest charges compared to a borrowing a larger principal.

Set Your Mortgage Budget

Determine a feasible loan amount before you purchase a home. Once you decide on the loan amount, make sure to follow your financial plan. Shop for homes within your price range and avoid going over your budget. This way, you’ll find a home you can afford within your means. Making a high down payment that’s 20% of the home’s price will also significantly decrease your principal.

### Interest

Interest is the fee your lender charges to carry your loan. This is based on an annual percentage rate (APR) which takes up a portion of your principal. A high interest rate results in greater interest charges over the life of the loan. Likewise, securing a lower rate will decrease your interest charges, saving you tens and thousands of dollars on your mortgage.

Moreover, borrowing a larger principal accrues higher interest charges. And the longer you take to pay your loan, the more interest it generates. This is the reason why extended terms such as 30-year fixed mortgages come with expensive total interest costs.

While interest rates depend on market conditions, your mortgage rate is largely based on your credit score and the strength of your financial profile. Most lenders typically use the FICO classification system which ranges between a 300 to 850. Many conventional loan lenders approve borrowers with a credit score of at least 680. Though some lenders may approve a lower credit score, these mortgages receive a higher rate.

Lenders impose higher rates on borrowers who pose greater default risk, who have greater chances of being unable to repay their debt. Those who receive favorable rates pose less default risk to lenders. If you want to obtain better than average rates, you must have a high FICO credit score of 740 and above. Thus, make sure to raise your credit score before taking a mortgage.

Improve Your Credit Score

A higher credit score will help you obtain more favorable mortgage rates. Be sure to check your credit report before applying for any loan. You can order a free copy at AnnualCreditReport.com. Borrowers can request for a free credit report every 12 months. You can improve your credit score by paying debts on time, settling unpaid debts, and reducing large credit card balances. You may also dispute errors on your credit report, such as unrecorded payments or a wrong billing address. This will help raise your credit rating.

### Loan Term

The loan term refers to the agreed payment duration on your loan. The most popular mortgage product in America is the 30-year fixed-rate loan. The long payment duration makes monthly payments more affordable than shorter terms. It also allows borrowers to qualify for a larger amount to purchase the home they need. According to Freddie Mac, 30-year fixed mortgages help make homeownership possible for many consumers.

However, upon closer inspection, you’ll find that 30-year fixed mortgages incur much higher interest costs than shorter terms. This is evident when you review its total interest costs compared to short terms, such as 15-year and 20-year fixed mortgages. Despite this fact, many homebuyers choose 30-year fixed mortgages for stable and affordable payments, at least for the meantime. Furthermore, longer mortgages have higher rates than shorter terms. 30-year fixed mortgage rates are higher by 0.25% to 1% than 15-year fixed mortgages.

If you want to pay off your mortgage early, you can take a shorter term. However, not everyone can afford the higher monthly payments. Another alternative is to make extra mortgage payments on your 30-year fixed mortgage. This will decrease your principal faster, shorten your term, and reduce overall interest charges. In other cases, you can refinance into a lower rate and 15-year term once you can afford higher payments.

Steer Clear of Prepayment Penalty

Before deciding to refinance or make extra loan payments, beware of prepayment penalty. This fee discourages borrowers from selling, refinancing, and paying their mortgage early. It costs around 1% to 2% of your principal and typically lasts for the first three years of your loan. To avoid this fee, you can wait for the penalty period to end before refinancing or making extra payments on your mortgage.

### The Loan Amortization Formula

Once you’ve determined key factors that comprise mortgage payments, you can now calculate the principal and interest costs on your amortizing loan. We’ll use the loan amortization formula below. This equation is used for calculating regular amortizing payments such as daily, biweekly, monthly, semi-monthly, quarterly, annual, and semi-annual payments.

**A = P * [r(1+r) ^{n}] / [(1 + r)^{n }– 1]**

Where:

A = periodic monthly payment

P = principal or borrowed amount

r = periodic interest rate, monthly is divided by 12; biweekly is divided by 26

n = loan term multiplied by the number of payment periods

Let’s presume your house is priced at $300,000 and you made a down payment of $60,000. This reduces your loan amount to $240,000. You took a 30-year fixed-rate mortgage at 3.5% APR, with a payment schedule of 12 monthly payments per year. Let’s solve for your monthly payment.

**Principal Loan Amount: $240,000Interest rate: 3.5% APRLoan term: 30 years**

A = P * [r(1+r)^{n}] / [(1 + r)^{n }– 1]

P = 240,000

r = 0.035 / 12

r = 0.00291

n = 30 * 12

n = 360

= 240,000 * [0.00291(1+0.00291)^{360}] / [(1 + 0.00291)^{360} – 1]

= 240,000 * [0.00291(1.00291)^{360}] / [(1.00291)^{360} – 1]

= 240,000 * [0.00291 * 2.846467331512451] / [2.846467331512451 – 1]

= 240,000 * [0.008283219934701231] / [1.846467331512451]

= 240,000 * 0.00448598239

= 1,077.71

In this example, the monthly principal and interest payment is **$1,077.71**. To calculate your loan’s monthly amortization payment more conveniently, use the above calculator. It can also add your escrow costs to determine the total monthly payment on your mortgage.

### Monitoring Your Loan’s Payment Schedule

Now that you know how to calculate your monthly principal and interest payment, you can create your amortization schedule. You can estimate how much of your payment goes toward your principal and interest each pay period. It will also let you determine your current principal balance.

To calculate your interest payment, multiply the interest rate by the loan balance. Then divide the product by the number of payments a year. In the following example, you have 12 monthly payments a year. Presuming your loan balance is $240,000 and your rate is 3.5% APR, this results in $8,400. Divide it by 12, and your interest payment is **$700**.

**Interest Payment = (APR * principal balance) / 12**

= (240,000 * 0.035) / 12

= 8,400 / 12

= 700

To determine how much principal is paid, subtract your interest payment from your monthly payment. The remaining amount is the payment applied to the principal. Using our previous example, if your monthly payment is $1,077.71 and you subtract $700 worth of interest payment, the resulting principal payment will be **$377.71**.

**Principal Payment = monthly payment – interest payment**

**= **1,077.71 – 700

= 377.71

Finally, to estimate your current principal balance, take your starting loan balance and subtract your principal payment. For example, if your beginning loan balance is $240,000 and your principal payment is $377.71, your principal balance will be reduced to **$239,622.29**.

**Current Principal Balance = beginning loan balance – principal payment**

= 240,000 – 377.71

= 239,622.29

If we keep applying this calculation for all 360 payments on a 30-year fixed mortgage, it will result in a full amortization schedule. Depending on how many payments you’ve made, you can track your principal loan balance and how many more payments you need to make. You can also see how much of your payment is being applied to the principal and interest each month.

To illustrate just how principal and interest payments are applied on a mortgage, the following amortization table shows the first and last six payments on a 30-year fixed mortgage. Notice how a bigger portion of the payment goes toward the interest during the first payments of the loan. Meanwhile, as the principal is reduced, a larger amount of the payment goes to the principal. This occurs by the time your mortgage payments are halfway through the term. The amortization schedule is followed until the loan balance is reduced to zero.

**Principal amount: $240,000Interest rate: 3.5% APRLoan term: 30 yearsMonthly P&I payment: $1,077.71**

Payment # / Date | Starting Balance | Principal Paid | Interest Paid | Ending Balance |
---|---|---|---|---|

1 – Mar 2021 | $240,000 | $377.71 | $700 | $239,622.99 |

2 – April 2021 | $239,622.99 | $378.81 | $698.90 | $239,243.48 |

3 – May 2021 | $239,243.48 | $379.92 | $697.79 | $238,863.56 |

4 – Jun 2021 | $238,863.56 | $381.02 | $696.69 | $238,482.54 |

5 – Jul 2021 | $238,482.54 | $382.14 | $695.57 | $238,100.40 |

6 – Aug 2021 | $238,100.40 | $383.25 | $694.46 | $237,717.15 |

— | — | — | — | — |

355 – Sept 2050 | $6,399.18 | $1,059.05 | $18.66 | $5,340.13 |

356 – Oct 2050 | $5,340.13 | $1,062.13 | $15.58 | $4,278.00 |

357 – Nov 2050 | $4,278.00 | $1,065.23 | $12.48 | $3,212.77 |

358 – Dec 2050 | $3,212.77 | $1,068.34 | $9.37 | $2,144.43 |

359 – Jan 2051 | $2,144.43 | $1,071.46 | $6.25 | $1,072.97 |

360 – Feb 2051 | $1,072.97 | $1,072.97 | $3.13 | 0 |

**Total Monthly P&I Payments: **$387,974.61**Total Interest Costs: **$147,974.61

Based on the table, on the first payment, only $377.71 was applied to the principal, while $700 went to interest. During each pay period, the principal payment increases incrementally. By the time it’s on the sixth payment, the principal paid increased to $383.25. This incremental pace slowly reduces the principal balance. Meanwhile, the interest slightly decreases each pay period. By the sixth payment, it’s reduced to $694.46, which is still significantly larger than the principal payment amount.

However, by the end of the term, more of the payment is applied to the principal. On the 355th payment, the principal amount is $1,059.05, while the interest payment has been reduced to $18.66. As the principal balance is significantly diminished, the lesser the interest payments. By the 360th payment, the balance is reduced to zero. As a result, the total P&I payments amount to $387,974.61. Meanwhile, it generated a total of $147,974.61 in interest costs over the life of the loan.

**What if we include escrow costs? **Let’s suppose the annual property taxes amounted to $2,500, while the annual mortgage insurance is $1,200, and the monthly HOA fees is $300. These expenses amount to $728.33 per month. If we take the monthly P&I payment from the previous example, the resulting monthly payment will be $1,806.04. Over 30 years, the total mortgage payments will amount to **$608,893.41**, which is the true cost of buying a home.

### Monthly vs. Lifetime Payments

Amortization schedules are crucial in gauging the total cost of your mortgage. While you may be offered an affordable monthly payment, you’ll only know the total cost if you perform calculations or check the amortization schedule. In particular, you should watch out for total interest charges. It will show how expensive a 30-year fixed mortgage is compared to a shorter term. Likewise, you can also compare total interest costs between loans with different rates.

For example, let’s compare the cost of a 30-year fixed mortgage with a 15-year fixed mortgage. The table below presumes both loans have a 20% down payment.

Loan Details | 30-year Fixed Mortgage | 15-year Fixed Mortgage |
---|---|---|

Principal loan amount | $240,000 | $240,000 |

Interest rate (APR) | 3.5% | 3% |

Number of payments | 360 payments | 180 payments |

Monthly P&I payment | $1,077.71 | $1,657.40 |

Total monthly P&I payments | $387,974.61 | $298,331.27 |

Total interest costs | $147,974.61 | $58,331.27 |

While both loans start with the same principal amount, their rate and term vary. The 30-year fixed mortgage has a higher rate by .50% than the 15-year term. The 30-year term comes with 360 payments, while the 15-year has 180 payments. At first glance, you’ll notice that the 30-year fixed mortgage has a cheaper monthly payment than the 15-year term. This is more affordable by $579.69, making the 30-year fixed mortgage are more practical loan option for many homebuyers.

However, the total cost is more apparent when we compare interest charges. With a 30-year fixed mortgage, your total interest costs will amount to $147,974.61. But if you take a 15-year fixed term, your total interest will only be $58,331.27. Thus, taking a 15-year fixed mortgage will save you $89,643.34 in interest charges.

On the other hand, if you have a tight budget, taking a shorter term may be out of the question. In this case, you have the option to make additional mortgage payments to shorten your term and reduce interest costs. Meanwhile, other homeowners elect to refinance to a shorter term after a couple of years when they can afford higher payments.

### Making Extra Mortgage Payments

With a fixed-rate loan, as long as you make payments as scheduled, you’re guaranteed to pay off your debt by the end of the term. It also comes with a precise amount of interest charges. But if you can make extra mortgage payments, it will accelerate your payment schedule. This results in a shorter term and reduced interest charges.

Paying extra, especially early into the term, diminishes your principal faster. It eliminates interest charges you’d otherwise incur if you didn’t reduce the principal sooner. The higher extra payments you make, the earlier you can pay off your mortgage. You’ll save more on interest over the life of the loan.

However, before you make extra payments, be sure to check on any prepayment penalty fees. It’s an extra expense that offsets savings from extra payments. Prepayment penalty is usually required for the first three years of a mortgage. To avoid costly charges, you can make additional payments after the penalty period. If you’re taking a new mortgage, you can also choose a loan without a prepayment penalty clause.

To show you how making extra payments work, let’s take the following example. The table shows how much time and money you’ll save by adding $100 per month at the beginning of your loan.

**30-year Fixed-rate LoanPrincipal Loan Amount: $240,000Interest rate: 3.5% APR **

Loan Details | Original Payment | Extra $100 per month |
---|---|---|

Monthly P&I payment | $1,077.71 | $1,177.71 |

Pay-off time | 30 years | 25 years 11 months |

Time Saved | None | 4 years 1 month |

Total Interest | $147,974.61 | $125,023.68 |

Total interest savings | None | $22,950.93 |

In this example, if you make an extra payment of $100 each month, you can shorten your term by 25 years and 11 months. It also reduces your total interest costs from $147,974.61 to $125,023.68. This saves you a total of $22,950.93in overall interest expenses.

**How does this affect your amortization schedule? **The extra payments toward your principal will whittle your principal faster. The table below shows your amortization schedule on the fifth year of your mortgage without extra payments. It’s followed by an amortization table with an extra payment of $100 each month.

**Amortization Schedule Without Extra Payment**

Payment # | Starting Balance | Principal Paid | Interest Paid | Payment | Ending Balance |
---|---|---|---|---|---|

49 – Jan 2025 | $204,106.98 | $482.40 | $595.31 | $1,077.71 | $203,624.58 |

50 – Feb 2025 | $203,624.58 | $483.80 | $593.91 | $1,077.71 | $203,140.78 |

51 – Mar 2025 | $203,140.78 | $485.22 | $592.49 | $1,077.71 | $202,655.56 |

52 – April 2025 | $202,655.56 | $486.63 | $591.08 | $1,077.71 | $202,168.93 |

53 – May 2025 | $202,168.93 | $488.05 | $589.66 | $1,077.71 | $201,680.88 |

54 – Jun 2025 | $201,680.88 | $489.47 | $588.24 | $1,077.71 | $201,191.41 |

55 – Jul 2025 | $201,191.41 | $490.90 | $586.81 | $1,077.71 | $200,700.51 |

56 – Aug 2025 | $200,700.51 | $492.33 | $585.38 | $1,077.71 | $200,208.18 |

57 – Sept 2025 | $200,208.18 | $493.77 | $583.94 | $1,077.71 | $199,714.41 |

58 – Oct 2025 | $199,714.41 | $495.21 | $582.50 | $1,077.71 | $199,219.20 |

59 – Nov 2025 | $199,219.20 | $496.65 | $581.06 | $1,077.71 | $198,722.55 |

60 – Dec 2025 | $198,722.55 | $498.10 | $579.61 | $1,077.71 | $198,224.45 |

Total | $5,882.53 | $7,049.99 | $12,932.52 | $198,224.45 |

**Amortization Schedule with $100 Extra Payment**

Payment # | Starting Balance | Principal Paid | Interest Paid | Payment | Ending Balance |
---|---|---|---|---|---|

49 – Jan 2025 | $198,962.79 | $597.40 | $580.31 | $1,177.71 | $198,365.39 |

50 – Feb 2025 | $198,365.39 | $599.14 | $578.57 | $1,177.71 | $197,766.25 |

51 – Mar 2025 | $197,766.25 | $600.89 | $576.82 | $1,177.71 | $197,165.36 |

52 – April 2025 | $197,165.36 | $602.64 | $575.07 | $1,177.71 | $196,562.72 |

53 – May 2025 | $196,562.72 | $604.40 | $573.31 | $1,177.71 | $195,958.32 |

54 – Jun 2025 | $195,958.32 | $606.16 | $571.55 | $1,177.71 | $195,352.16 |

55 – Jul 2025 | $195,352.16 | $607.93 | $569.78 | $1,177.71 | $194,744.23 |

56 – Aug 2025 | $194,744.23 | $609.71 | $568.00 | $1,177.71 | $194,134.52 |

57 – Sept 2025 | $194,134.52 | $611.48 | $566.23 | $1,177.71 | $193,523.04 |

58 – Oct 2025 | $193,523.04 | $613.27 | $564.44 | $1,177.71 | $192,909.77 |

59 – Nov 2025 | $192,909.77 | $615.06 | $562.65 | $1,177.71 | $192,294.71 |

60 – Dec 2025 | $192,294.71 | $616.85 | $560.86 | $1,177.71 | $191,677.86 |

Total | $7,284.93 | $6,847.59 | $14,132.52 | $191,677.86 |

Without making additional payments, your principal balance will be $198,224.45 by end of the fifth year of your mortgage. This results in a total of $7,049.99 in interest charges and $5,882.53 principal costs on the fifth year of your loan.

However, if you make an extra payment of $100 per month, your principal balance will be reduced to $191,677.86 by the end of the fifth year of your loan. Your balance will be lower by $6,546.59 compared to not making extra payments. You’ll spend a total of $7,284.93 on principal costs and only $6,847.59 on interest charges. This example illustrates how much faster you can pay your mortgage when you make additional payments.

### Mortgage Refinancing

Refinancing is the process of replacing your old mortgage to obtain a more favorable deal. It allows you to change to a lower rate and shorten your term. When market rates significantly drop, many homeowners refinance their mortgage to secure a much lower rate which boosts interest savings. Such was the case during the 2020 refinancing boom. Despite the COVID-19 crisis, many homeowners rushed to refinance their loan as the Federal Reserve kept benchmark rates at historic lows.

With refinancing, you have the opportunity to shorten your 30-year fixed mortgage into a 15-year term. If you’ve increased your income after a couple of years, you might be able to afford higher monthly payments for a shorter term. Compared to making extra payments, this will pay your mortgage faster and save significantly more on interest charges. Refinancing is an ideal option if you plan to remain long-term in your house and when general market rates are low.

To give you an idea, here’s how much time and money you can save if you refinance into a lower rate and a shorter term. Suppose you took a 30-year fixed mortgage at 5.5% APR with a $240,000 loan. You made a 20% down payment to avoid private mortgage insurance. After five years, you decided to refinance into a 15-year fixed mortgage at 3.5% APR. Let’s review how much your refinance will cost.

**Original Loan Amount: $240,000Original Loan Term: 30 yearsOriginal Rate: 5.5% APRRemaining Monthly Payments: 300Refinanced Loan Amount: $221,905.41Refinance Loan Term: 15 yearsRefinance Rate: 3.5% APR**

Loan Details | Original Mortgage | Refinanced Loan |
---|---|---|

Monthly P&I payment | $1,362.69 | $1,586.36 |

Total mortgage payments | $490,569.70 | $286,745.35 |

Total interest costs | $186,902.63 | $63,639.94 |

*This computation did not include escrow costs.*

In this example, if you refinance your 30-year fixed mortgage at 5.5% APR into a 15-year fixed mortgage at 3.5% APR, your monthly P&I payment will increase from $1,362.69 to $$1,586.36. However, you’ll reduce you total interest costs from $186,902.63 to $63,639.94. This will save you a total of $123,262.69 in interest charges.

On the other hand, refinancing is often a costly and time-consuming process. Since you’re taking out a new mortgage, you must have a credit score of at least 620 to refinance. But to secure a more favorable rate, aim to improve your credit score to 700 and above. Refinancing too early may also require prepayment penalty fees. To avoid this cost, you can wait for the penalty period to end, which is usually after three years.

Closing costs for refinancing are steep, ranging from 3% to 6% of your loan amount. This means if you have a $200,000 loan balance, your closing costs will be around $6,000 to $12,000. To compensate for this hefty fee, you should refinance to a considerably lower rate. It should be 1% to 2% lower than your original rate. Doing so will help you recoup the cost of refinancing sooner to gain savings.

Adverse Market Refinance Fee

Fannie Mae and Freddie Mac has required mortgage lenders to charge a 50 basis point adverse market refinance fee to borrowers. This fee was officially implemented on December 1, 2020. Due to the COVID-19 pandemic, the global economy plunged into a recession in 2020. Fannie Mae and Freddie lost an estimated $6 billion to the crisis, which prompted them to charge an adverse market refinance fee. Borrowers with a balance of $125,000 and below are exempted from this extra charge, including FHA and VA refinances. Consider this extra cost before refinancing your loan.

### Prioritize High-Interest Debts

Before you focus on paying your mortgage, it’s important to set your financial priorities. In particular, you might have **high-interest credit card debts** that require more attention. Note that interest on credit cards grow larger the longer you don’t pay them back. They also have much higher APRs than mortgages, which average at around 16%. Once you’re caught with punitive late fees, it will be harder to pay it off, not to mention the stress caused by collection agencies. So don’t let credit card debts spiral out of control.

In this scenario, prioritize payments toward your credit card bills first. Though credit cards are technically not an amortizing loan, paying extra toward your credit card debt will significantly decrease your principal. In fact, the minimum credit card payment is not enough to reduce your credit card balance. If you only kept paying the minimum, it will take a ridiculous number of years to pay off your credit card debt. Likewise, it will also cost an exorbitant amount of interest charges. Thus, be sure to make extra payments on your credit card to clear your balance faster.

High-interest debts can take away income for more important expenses. It also keeps you from building savings, such as emergency funds and retirement funds. At worst, it can put you at risk of bankruptcy. To steer clear of toxic debt, make sure to prioritize large high-interest debts in your finances.

### In Summary

Regular amortization is a characteristic of fixed-rate loans, such as 30-year fixed mortgages. Amortization is calculated in loans that come with a predetermined term, principal amount, and interest rate. When your loan amortizes, it distributes payments evenly throughout the term. As long as you follow the amortization schedule, it ensures your loan balance is paid off by the end of the mortgage.

Your monthly mortgage payment is determined by three main components. The principal, which is the amount you borrowed; the interest rate, which is based on a percent of the principal; and the loan term, which is how long you must pay your mortgage. A larger principal and interest rate results in a higher monthly payment. Having a fixed rate loan also guarantees your monthly P&I payment remains the same throughout the term. Meanwhile, a longer term comes with affordable monthly payments compared to shorter terms. This is the reason why 30-year fixed mortgages are more popular than shorter terms.

Learning how amortization works lets you calculate how much of your payments go toward your principal and interest costs. This can help you develop a payment strategy to further reduce your principal, which helps shorten your loan term. Finally, understanding how amortization works helps you know the true cost of borrowing money.

With sound financial management, you can improve your capacity to pay off debts. As we’ve explained in the article, you can elect to make extra payments to pay your mortgage early. In other cases, you can eventually refinance into a lower rate and shorter term to save on interest costs. The sooner you pay your debt, the more money you can save. It will also improve your credit rating, which makes you eligible for more favorable loans in the future.

## San Diego Borrowers: Are You Unsure Which Loans You'll Qualify For?

We have partnered with Mortgage Research Center to help San Diego homebuyers and refinancers find out what loan programs they are qualified for and connect them with San Diego lenders offering competitive interest rates.