Mortgage-Free Calculator
First-time home buyers are oftentimes surprised by how little of their monthly mortgage payments go toward reducing principal.
A $200,000 loan at 6.75% compounded semiannually over a 20-year term would involve a monthly mortgage payment of $1,510 per month, of which only $400 (of the first payment) would go toward principal repayment.
The remainder of the first payment ($1,110 per month) would be interest.
The relative distribution between principal and interest does (fortunately) change over time. Over time, a greater proportion of each mortgage payment is credited toward principal.
For those homeowners who can afford it, one way to become mortgage free sooner would be to increase the monthly mortgage payment. Continuing the earlier example, if the $1,510 monthly required mortgage payment were increased to $1,610 instead, the repayment period would decrease from 20 years to 17.6 years instead.
The reason why this works is that any amount of increase (up and beyond the required mortgage payment) is allocated directly to principal repayment. For our hypothetical borrower (discussed above), the portion of the first mortgage payment allocated to principal changes from $400 to $500 instead (an increase of 25%) .
The mortgage-free calculator calculates the remaining period to achieve mortgage-free status. The model requires the user to enter the principal outstanding, the monthly payment, and the mortgage interest rate (on a semiannual compounded basis).