Reamortize Mortgage Calculator

Mortgage Reamortization Calculator

Enter your current mortgage details and the desired new terms to see how reamortizing affects your loan. This is useful if you've made a large lump-sum payment or want to adjust your payment schedule.

What is Mortgage Reamortization?

Mortgage reamortization is the process of recalculating your mortgage's payment schedule. It essentially involves taking your current outstanding loan balance and reapplying it to a new payment plan with potentially a different loan term, while usually keeping the original interest rate. This is most commonly done after making a significant lump-sum payment towards the principal, which reduces the amount you owe. By reamortizing, you can often lower your monthly payments or pay off your mortgage faster, depending on how you adjust the loan term.

Who Should Consider Reamortizing?

• Homeowners who have made a substantial principal reduction through lump-sum payments (e.g., inheritance, bonus).
• Borrowers who want to adjust their monthly cash flow and potentially lower their payment by extending the loan term.
• Individuals looking to optimize their mortgage payoff strategy after a significant financial event.

Common Misconceptions:

• Reamortization is refinancing: While both change your mortgage, refinancing involves getting a completely new loan, often with a new lender and new interest rate. Reamortization typically uses your existing loan with the same lender and rate, simply adjusting the payment schedule based on the new principal balance.
• It always lowers your payment: While a common goal, if you choose to shorten the loan term during reamortization, your monthly payments might increase to compensate for the reduced repayment period.
• It's an automatic process after a large payment: In most cases, you need to explicitly request reamortization from your lender.

Reamortize Mortgage Calculator Formula and Explanation

The core of reamortizing a mortgage lies in recalculating the monthly payment based on the new loan parameters. The standard formula for calculating a fixed-rate mortgage payment is used, but with updated figures.

The Mortgage Payment Formula

The formula used to calculate the monthly payment (M) is:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Variable Explanations:

• M: Your new calculated monthly payment (principal and interest).
• P: The outstanding principal balance of your loan after any lump-sum payments. This is the new 'effective' loan amount for the calculation.
• i: The monthly interest rate. This is calculated by dividing your annual interest rate by 12 (e.g., 4.5% annual rate becomes 0.045 / 12 = 0.00375 monthly).
• n: The total number of payments (months) remaining in your loan term. This is calculated by multiplying your new loan term in years by 12.

Step-by-Step Derivation:

1. Determine the New Principal (P): Start with the current remaining balance and subtract any lump-sum payment you've made.
2. Calculate the Monthly Interest Rate (i): Divide the original annual interest rate (as a decimal) by 12.
3. Calculate the Total Number of Payments (n): Multiply the new desired loan term (in years) by 12.
4. Apply the Formula: Plug the values of P, i, and n into the mortgage payment formula to find M.
5. Calculate Total Interest: Multiply the new monthly payment (M) by the total number of payments (n) to get the total amount paid over the new term. Subtract the new principal (P) from this total to find the total interest paid under the new terms.
6. Calculate Interest Saved: Compare the total interest you *would have paid* under the original terms (original monthly payment * original number of payments) versus the new total interest. The difference is the interest saved.

Variable Table:

Variable	Meaning	Unit	Typical Range
Original Loan Amount	The initial principal borrowed.	USD ($)	$100,000 – $1,000,000+
Original Interest Rate	Annual interest rate of the mortgage.	%	1% – 15%+
Original Loan Term	Total duration of the mortgage.	Years	15, 20, 30 years
Remaining Balance	Outstanding principal at the time of reamortization.	USD ($)	$0 – Original Loan Amount
Lump-Sum Payment	Extra principal payment.	USD ($)	$0 – Significant amount
New Loan Term	Desired remaining repayment period.	Years	1 – Original Term
Monthly Interest Rate (i)	Interest rate per month.	Decimal	0.0001 – 0.015 (approx.)
Number of Payments (n)	Total number of monthly payments.	Months	12 – 360+

Key variables involved in mortgage reamortization calculations.

Practical Examples of Reamortizing a Mortgage

Let's illustrate how reamortization works with a couple of common scenarios.

Example 1: Lowering Monthly Payments After a Large Bonus

Sarah received a $20,000 bonus and decides to apply it as a lump-sum payment to her mortgage. She wants to see if she can lower her monthly payments.

• Original Loan Amount: $300,000
• Original Interest Rate: 4.5%
• Original Loan Term: 30 years
• Current Remaining Balance: $275,000
• Lump-Sum Payment: $20,000
• New Loan Term: 25 years (She decides to shorten the term slightly to pay it off sooner)

Calculation Steps:

• Original Monthly Payment (calculated separately): ~$1,519.95
• New Principal (P): $275,000 – $20,000 = $255,000
• Monthly Interest Rate (i): 0.045 / 12 = 0.00375
• New Number of Payments (n): 25 years * 12 months/year = 300
• New Monthly Payment (M): $255,000 [ 0.00375(1 + 0.00375)^300 ] / [ (1 + 0.00375)^300 – 1] ≈ $1,461.78
• Total Paid (Original Schedule, approx): $1,519.95 * 360 = $547,182
• Total Interest (Original Schedule, approx): $547,182 – $300,000 = $247,182
• Total Paid (New Schedule): $1,461.78 * 300 = $438,534
• Total Interest (New Schedule): $438,534 – $255,000 = $183,534
• Interest Saved: $247,182 – $183,534 = $63,648

Interpretation: By applying the $20,000 bonus and reamortizing over a 25-year term, Sarah's monthly payment decreased by about $58 ($1,519.95 – $1,461.78), and she saved over $63,000 in interest throughout the life of the loan, while also paying it off 5 years sooner than originally planned.

Example 2: Adjusting Term for Cash Flow

John wants to free up some monthly cash flow. He's behind on his original payment schedule due to unexpected expenses and decides to reamortize, extending his term.

• Original Loan Amount: $400,000
• Original Interest Rate: 5.0%
• Original Loan Term: 30 years
• Current Remaining Balance: $350,000
• Lump-Sum Payment: $0 (No extra payment)
• New Loan Term: 35 years (Extending the term)

Calculation Steps:

• Original Monthly Payment (calculated separately): ~$2,147.29
• New Principal (P): $350,000
• Monthly Interest Rate (i): 0.050 / 12 = 0.0041667
• New Number of Payments (n): 35 years * 12 months/year = 420
• New Monthly Payment (M): $350,000 [ 0.0041667(1 + 0.0041667)^420 ] / [ (1 + 0.0041667)^420 – 1] ≈ $1,865.79
• Total Interest (Original Schedule, approx): ($2,147.29 * 360) – $400,000 = $373,024.40
• Total Interest (New Schedule): ($1,865.79 * 420) – $350,000 = $433,631.80

Interpretation: John successfully reduced his monthly payment by approximately $281.50 ($2,147.29 – $1,865.79). However, extending the loan term means he will pay significantly more interest over the life of the loan (about $60,607 more). This example highlights the trade-off between immediate cash flow relief and long-term cost.

How to Use This Reamortize Mortgage Calculator

Our calculator is designed for simplicity and clarity. Follow these steps to understand your reamortization options:

1. Enter Original Loan Details: Input the original amount you borrowed, the annual interest rate, and the total original loan term in years.
2. Input Current Status: Provide your current remaining loan balance.
3. Add Optional Lump Sum: If you've made or plan to make a significant extra payment towards the principal, enter that amount. If not, leave it at $0.
4. Specify New Term: Enter the desired remaining loan term in years. This could be shorter than the original term (to pay off faster) or longer (to lower payments).
5. Click Calculate: Press the "Calculate Reamortization" button.

Reading the Results:

• New Monthly Payment: This is the primary result, showing your adjusted principal and interest payment.
• Original Monthly Payment: For comparison, this shows what your payment was before reamortization.
• Total Interest Saved: If your new payment is lower or you've shortened the term, this indicates the estimated interest savings compared to the original loan schedule.
• New Loan Total Interest: This is the total interest you will pay over the new loan term based on the reamortized payment.
• Key Assumptions: Review the loan amount, interest rate, and new term used in the calculation to ensure accuracy.

Decision-Making Guidance:

• Compare Payments: See if the new payment meets your cash flow needs.
• Analyze Total Interest: Understand the long-term cost. Lowering payments by extending the term usually increases total interest paid.
• Consider Payoff Time: Note how changing the term affects how quickly you'll own your home free and clear.
• Consult Your Lender: Remember that actual reamortization requires lender approval and may involve fees. This calculator provides an estimate.

Use the "Copy Results" button to save or share your findings. Click "Reset" to clear the form and start over.

Key Factors Affecting Reamortization Results

Several elements significantly influence the outcome of a mortgage reamortization. Understanding these can help you strategize effectively:

1. Remaining Loan Balance: This is the foundation of your reamortization. A higher balance means a higher principal for the new calculation, potentially leading to higher payments unless the term is extended considerably. Applying lump-sum payments directly reduces this balance, often resulting in significant savings.
2. Interest Rate: While reamortization typically uses your existing interest rate, this rate is crucial. A lower rate on the original loan means less interest accrues, making any principal reduction more impactful. If you were to refinance instead of reamortize, the new interest rate would be the most critical factor. Even a small difference in rate compounds significantly over time.
3. New Loan Term: This is a major lever. Shortening the term will increase monthly payments but drastically reduce total interest paid and allow you to own your home sooner. Extending the term will lower monthly payments but increase the total interest paid over the loan's life.
4. Timing of Lump-Sum Payments: Applying a large payment earlier in the loan's life has a more substantial impact. This is because early payments on a standard mortgage amortization schedule primarily cover interest, with less going to principal. A lump sum directly attacks the principal, reducing the base on which future interest is calculated.
5. Lender Fees: Some lenders may charge fees for processing a reamortization request. These fees can offset some of the potential savings, especially if the adjustments are minor. Always inquire about any associated costs.
6. Inflation and Opportunity Cost: While lowering your monthly payment provides immediate cash flow relief, consider the opportunity cost. Could that money be better invested elsewhere, potentially yielding higher returns than the interest saved on the mortgage? High inflation environments might also make paying off fixed-rate debt faster less appealing compared to investing in assets that appreciate with inflation.
7. Tax Implications: Mortgage interest is often tax-deductible. Reducing your total interest paid through reamortization might lower your potential tax deductions. Consult a tax professional to understand how changes affect your specific tax situation.

Frequently Asked Questions (FAQ)

Q1: Do I need to refinance to reamortize my mortgage?

A1: No, typically you do not need to refinance. Reamortization usually involves adjusting the payment schedule with your current lender based on your existing loan, whereas refinancing means obtaining a completely new loan, often with a different lender and potentially a new interest rate.

Q2: Can I reamortize if I only made one extra payment?

A2: While technically possible, reamortizing after just one small extra payment might not yield significant benefits and could incur fees. Reamortization is most effective after substantial principal reductions, like large lump-sum payments.

Q3: Does reamortizing affect my credit score?

A3: Generally, reamortizing with your existing lender does not involve a hard credit check and therefore should not negatively impact your credit score. Refinancing, however, does involve a hard inquiry.

Q4: Are there fees associated with reamortization?

A4: Yes, some lenders may charge administrative or processing fees for reamortization. It's essential to confirm these fees with your mortgage provider before proceeding.

Q5: What happens to my escrow account during reamortization?

A5: Reamortization typically only affects the principal and interest portion of your payment. Your escrow account (for taxes and insurance) usually remains unchanged unless your property taxes or insurance premiums have been adjusted.

Q6: Can I change my interest rate when I reamortize?

A6: No, reamortization itself does not change your interest rate. It recalculates payments based on the new principal balance and remaining term at your *existing* interest rate. Changing the rate requires refinancing.

Q7: What's the difference between reamortizing and adding extra payments?

A7: Adding extra payments (either a lump sum or regular additional amounts) without formally requesting reamortization will still reduce your principal faster and save interest. However, your *scheduled* monthly payment remains the same unless you go through the reamortization process to adjust it based on the reduced balance and potentially a new term.

Q8: How long does the reamortization process take?

A8: The timeframe can vary by lender, but it typically involves submitting a request, waiting for processing and approval, and then receiving the new payment schedule. It could take anywhere from a few days to a few weeks.