Updated: Jul 1, 2023
Our ultimate interest-saving calculator integrates multiple features into one. With this calculator, you can easily envision the potential benefits of making additional yearly payments and accelerating bi-weekly payments, which have proven to be highly effective strategies for saving significant amounts of interest. Often, individuals continue to pay interest rather than pay off their debt, not because they don't want to become mortgage-free sooner but because they are unaware of the potential savings. Our calculator addresses this issue by helping you optimize your interest-saving strategy. Once you embrace debt, paying off the interest becomes the only viable option which is one of the misconceptions people live with it their entire life, unfortunately. Dealing with interest carries significant implications, particularly within the Islamic context. It is not easy to comply with Islamic principles because everyone faces unique challenges, and our calculator considers these considerations. We provide options and solutions that align with Islamic finance principles, ensuring you can make informed decisions regarding your interest obligations. Moreover, purchasing a property can be challenging, especially when you don't have sufficient funds. Traditional financing options often involve interest, limiting the choices available to prospective Muslim buyers. By keeping this objective, our interest-saving calculator aims to assist individuals in visualizing the interest profiles associated with different scenarios, both before and after taking on debt. Understanding the potential interest savings strategy allows you to make the right decisions regarding your financial situation and plan for a brighter future.
Accelerating Payments can help to slash 2% to 20% interest cost at the interest rate from 1% up to 20%. However, the trend of savings interest decreases as the interest rate increases. The Accelerating Payments are the best choice for those who want to save interest at nominal investment, i.e., one extra monthly payment amount per year. Additional payments can be made in addition to the accelerating payments. Additional payments are another smart way to save mortgage interest.
The graph below shows how the total yearly payments track with interest savings. Your mortgage can be paid much faster. It is not necessary to pay large amounts of additional payments, but it can make a big difference with even 1% of the total mortgage amount.
Also, Analysis does explain how quickly your mortgage can finish in a reduced number of years. The bigger the additional payment you make, the bigger the interest portion you eliminate. Accelerating payments and yearly payments will be your ultimate interest savings method for any type or size of mortgage.
The additional payment per year is inversely proportional to the rate of savings. The Optimum savings can be found where the two line crosses in the graph. After the optimum savings, the savings rate goes down drastically even though you are paying a bigger additional monthly payment.
Use our Ultimate Interest Savings calculator to create a table similar to the one below based on your mortgage amount, interest, and amortization period. To create a table, you should install Microsoft Excel on your computer. The first column, Additional monthly payments, can be created by simply taking the percentage of the Mortgage amount (1%, 2%...70%). Then you will have to use our above calculator to get the Interest savings and %savings for every additional payment per year and combined interest %savings. The "Rate of Savings" can be calculated by dividing the % Savings by % Additional payments per month and then plotting the chart in Excel to get your Optimum additional monthly payment.
For instance, If you have a mortgage of $610,000 at a 3.69% interest rate for an amortization period of 30 years. If you choose to make 1% of additional payments of the total mortgage amount and it turns out to be $6,100 a year, it will result in interest savings of $143,502 over the amortization period of 30 years. So, the yearly average interest savings will be $143,502/30 = $4,783, resulting in a 78% return on mortgage interest. The CIG (Guaranteed Investment Certificate) and Mutual funds are the two popular types of investments. We cannot compare Mutual funds with Mortgage interest due to their uncertainty on the rate of return. However, CIG has a guaranteed investment return comparable to Mortgage interest. With the CIG, you may earn between 2% to 3% of interest on investments. For example, if we invest $6,100 + $2,795 = $8,895, then at the interest rate of 2%, you would earn $1,948 interest in 10 years term. So, you will be saving $1,948/10 = $194.8 per year, which is quite less than the yearly interest savings on an additional mortgage payment, which is $4,733 per year.
DISCLAIMER: We strive to offer users accurate information to the best of our knowledge. However, laws are subject to change; therefore, the user assumes full responsibility and should utilize the information on our website and this tool as a reference per our terms and conditions. If you believe any part of the calculation is incorrect or contains errors, we kindly request your feedback here.