Your Mortgage : Web Site Helps Calculate Early Payment Formulas

Judging by my mail, for every borrower who worries about how they are going to make their next payment, there are 10 looking to repay early. Their personal strategies for doing this, however, vary widely. Here is a sampling, with loan details omitted:

* “I just took out a loan. . . . If I add $100 a month to the payment beginning immediately, can you tell me when my loan will be paid off?”

* “If I raise my payment from $763.24 to $800, how much sooner will I pay off?”

* “I figure that my bonus every December will allow me to pay $1,200 extra that month. If I do this every year, when will I be out of debt?”

* “We’re stretched right now, but in two years my wife will go back to work . . . and we will be able to add $400 a month to our mortgage payment. Can you tell me when this will pay off the loan in full?”

* “We recently inherited $45,000 from my father. If we use it to reduce the balance on our loan, when will we get out of debt?”

* “I promised my daughter that if she took out a 15-year loan and made all the payments on time, I would pay the balance remaining after 10 years. Can you tell me how much that promise is going to cost me?”

I recently discovered a neat amortization calculator on the Internet that can be used to answer all of these questions.

The calculator is so easy to use that I can refer those who send me these kinds of questions to the site, without feeling guilty at all. You can find the calculator at https://www.decisionaide.com. From the home page, click on “Loan Schedules” to get to the free calculator.

This calculator also handles multiple-payment options of any type. For example, it will generate the amortization schedule if you make an extra payment of $100 every month starting in month six, plus an extra payment of $1,500 every year starting in month 18, plus a single payment of $12,000 in month 36. Up to 10 such changes can be entered.

You can also do a number of things with this calculator that are not self-evident.

One example is determining when a loan will pay off when you go on a biweekly payment plan. Regular readers know that a biweekly plan is the equivalent of one extra monthly payment every year beginning in the 12th month.

To find the payoff month on a biweekly, therefore, you first enter the loan amount, rate and term and click your mouse. The monthly mortgage payment will pop up.

Then you select “Make Extra Payment Every 12 Months,” select month 12 to begin the payment and select a payment amount equal to the monthly payment. You then scroll down the amortization table and find the month when the balance goes to zero.

You can also design your own prepayment plan and compare it to a biweekly plan. For example, the biweekly plan will pay off a 30-year 7.5% loan in 283 months. If instead you add 1/12 of your payment to each monthly payment, you pay off in 280 months. And if you make one payment per year equal to the monthly payment as on the biweekly, but you make the first payment in month one rather than month 12, you pay off in 276 months.

Such comparisons are a breeze with this calculator.

The decisionaide site has a more powerful program that allows users to compare up to five loan programs on an apples-to-apples basis.

Unlike with the amortization calculator, however, users have to know what they are doing, and it costs $10. It’s a nice tool for sophisticated shoppers who have collected all the data needed to compare loan options.

Jack Guttentag is a syndicated columnist and a professor of finance emeritus at the Wharton School of the University of Pennsylvania. Questions or comments can be left at mtgprofessor.com. Distributed by Inman News Features.