How to save money using savings & amortization calculators

November 07th, 2011

While considering how to best target their money, many homeowners may have wondered, "Should I invest my money, or pay down my mortgage faster?" While the answer depends somewhat on personal circumstances, including other available cash sources and upcoming needs, using an online Mortgage Amortization Calculator and Savings Calculator may help you decide which option provides the greater long term financial reward.

Savings example scenario

Let's assume you are refinancing a $300,000 mortgage with a 6.5% rate and payment of $1,900 per month to a $300,000 mortgage with a 30 year fixed refinance rate of 5%, saving approximately $300 per month.

You have several options for using the $300 savings per month, including: paying down other debt, investing, or paying down your refinanced mortgage. Many people may choose to pay off credit card debt before considering other options, but once that is done, you should generally commit either to investing or paying down your mortgage, to achieve the full benefit of your chosen strategy.

So, is it better to pay an extra $300 on your $300,000 mortgage every month, or deposit $300 more toward savings and investment?

Using online mortgage amortization and savings calculators

First, open the Amortization Calculator and enter your loan amount ($300,000), mortgage rate (5%) and term (30 years), and select "Compute." Then click on "View Amortization," and an amortization chart will appear in a separate window; do not close the amortization chart window.

Next, open the Savings Calculator and input monthly payment (amount saved from refinance, $300), number of months you will be saving (for this example, use 20 years or 240 months) and assumed rate of return (for this example, assume 5% for long term investments). Click on compute and you'll see a projected savings value of over $124,000.

Now re-open the amortization chart window and scroll down to determine when your $124,000 will be able to pay off your mortgage; in this case, it's after 266 months, or about 22 years. If you pay off your mortgage early, you will have shaved about 8 years (94 months) off your mortgage repayment term. Multiply your refinanced mortgage payment of $1,600 per month x 94 months, and you see that you'll save approx. $150,400 by paying off your mortgage off early. When compared to the $124,000 you could have otherwise saved directly, it's obvious which option you should choose: pay down the mortgage!

Every household has changing financial needs, so continue to use the Amortization Calculator and Savings Calculator to account for ongoing changes in your budget. This way, you can be sure to maximize your savings over time.

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