Compare payoff time and interest with an extra monthly principal payment, or select a loan variable to calculate from three known values. Payments include principal and interest only.
Mortgage Accelerator Formula
The following equation is used to calculate the Mortgage Accelerator Payment per month.
- Where MA is the Mortgage Accelerator Payment ($/month)
- MP is the standard mortgage payment ($/month)
- AP is the additional payment ($/month)
To calculate the mortgage accelerator payment, add the additional payment to the standard mortgage payment. When the servicer applies the extra amount to principal, it can reduce the balance faster and save interest. Check any fees or prepayment restrictions.
What is a Mortgage Accelerator?
Definition:
A mortgage accelerator is a strategy designed to help homeowners pay off their mortgage faster by making additional or more frequent payments. This approach typically reduces the total interest paid over the life of the loan and can shorten the loan term.
How to Calculate Mortgage Accelerator?
Example Problem:
The following example outlines the steps and information needed to calculate the Mortgage Accelerator Payment.
First, determine the standard monthly mortgage payment. In this example, the payment is $1,200 per month.
Next, determine the additional amount you plan to pay each month. In this case, you decide to pay an extra $300.
Finally, calculate the Mortgage Accelerator Payment using the formula above:
MA = MP + AP
MA = $1,200 + $300
MA = $1,500/month
FAQ
What are some common methods to accelerate a mortgage?
Common methods include making a lump-sum payment when possible, setting up bi-weekly payments instead of monthly, refinancing to a shorter-term loan, or consistently adding an extra amount to your monthly payment to pay down the principal faster.
Does paying more frequently really save money on interest?
Savings depend on when the servicer credits payments to principal, the interest accrual method and whether total principal payments increase. Merely splitting the same monthly payment does not guarantee savings. This calculator models extra principal with each month-end payment.
Is a mortgage accelerator strategy right for everyone?
While accelerating your mortgage can save you money on interest, it may not be ideal if you need to focus on other financial goals, such as building an emergency fund or paying off high-interest debt. It’s important to assess your overall financial situation before implementing a mortgage acceleration plan.
