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The graphs below illustrate the mechanics of applying mortgage acceleration to a fixed rate mortgage. The example uses a $380,000 30 year fixed rate mortgage with a 4% interest rate. The graph at the top of the page shows the amortization, or split between principal (dark blue bar) and interest (light blue bar), and mortgage balance (green diamond) for the mortgage with NO acceleration. As you can see, you pay mostly interest at the beginning of the mortgage and mostly principal at the end of the mortgage and the mortgage balance is zero at the end of the mortgage, or year 30 in this example.
The graph at the bottom of the page shows the impact of the borrower accelerating his or her mortgage by $200 per month. As illustrated by the graph, the borrower pays down the principal amount of his or her loan faster, which results in a significant reduction in the length of the mortgage, mortgage payments and interest expense. In the acceleration example, the mortgage is paid off in year 25, as opposed to year 30, which saves the borrower more than $55,000 in interest expense.
Loan terms assume conforming mortgage amount, 80% LTV ratio and minimum borrower credit score of 740. Purchases and rate and term refinances only. $150,000 minimum mortgage amount. Borrower is responsible for $1,055 lender fee. Loan terms are subject to change without notice.
Data provided by Brown Bag Marketing, Inc. Payments do not include amounts for taxes and insurance premiums. Read through our lender table disclaimer for more on rates and product details.
About the author
Michael Jensen, Mortgage and Finance Guru
Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael