#### Calculator Legend

**Mortgage Amount**: Enter the entire amount of the mortgage (the original principal). If you are going to add any fees, such as closing costs, to the mortgage, remember to enter the total amount of the mortgage in the field, not simply the home purchase price. The calculator lets you specify amounts between 100 and 1,000,000.

**Interest Rate**: the quoted rate of the mortgage.

**Term**: Enter the mortgage's current term. The current term is the amount of time you originally had to make payments, assuming you haven't already made additional payments to pay down the mortgage earlier. The term is determined at the time you take out the mortgage. The calculator lets you select from 1 to 30 years. (Thirty years is the most common term traditionally.)

**Prepayments**: whether you will make any extra payments beyond what the mortgage requires. The calculator only allows you to select either a one-time or yearly prepayment, not a monthly prepayment. There is a significant difference between yearly and monthly prepayments. Interest racks up during the year and not just year-to-year. So a yearly prepayment is worth less than if it had been spread out monthly over the preceding year, and worth more than if it were spread out over the following year. To see how monthly prepayments will affect your mortgage, use the Accelerated Mortgage Payoff Calculator.

**Prepayment Amount**: the amount of the individual prepayment. Even if the prepayment will be made yearly, only include the value of each yearly prepayment rather than the total value of all the prepayments together. The calculator will figure out the total value of all the prepayments including their effect on interest.

**Start Prepayment in Year**: if you plan on making a prepayment every year of the mortgage, enter 1. If you will start making yearly prepayments 5 years into the mortgage, enter 5. If you will only make a one-time prepayment, enter the year of the mortgage when you will make the prepayment. If you are making the prepayment before signing the mortgage, that does not count as a prepayment. Simply subtract the amount you are paying upfront from the Mortgage Amount.

### Fixed Rate Mortgages Explained

A mortgage is just a loan that uses the property being bought as collateral. However, unlike most

other loans, mortgages are generally paid back over very long timeframes. Amortization is the method of paying back a mortgage's principal (the original loaned amount) and interest over time. With most mortgages, the interest ends up costing more than the principal. Small differences in how the mortgage is paid each month can make big differences over the life of the mortgage.

### Principal and Interest

The principal is the amount owed on the mortgage. At the beginning, it's usually the purchase price of the home plus any fees or closing costs not paid in advance, minus any down payments. The interest is calculated based on the principal. If you're paying 8% interest, it's 8% of the principal. So, the less your principal, the less interest you pay.

### Mortgage Term

The term is the amount of time you have to make payments on the mortgage. The traditional mortgage in the United States had a 30-year term. However, 15-year mortgages became increasingly common toward the end of the 20th century. The shorter your mortgage's term, the less time interest has to grow. Compared with a 30-year mortgage, a 15-year mortgage usually saves hundreds of thousands of dollars.

### Mortgage Prepayments

The longer you spend paying your mortgage, the longer interest has to grow. Therefore, the best way to reduce the amount of interest you pay is to

pay your mortgage faster. You don't have to get a

shorter mortgage term to pay down your mortgage faster. You can also prepay your

mortgage. You want to pay down all interest that has accrued each month, and as much as possible of the principal. The calculator lets you see how a one-time or yearly prepayment will affect how much you pay.