Balance: The difference between the amount due and the amount paid on a mortgage loan.
Balance: The mortgage balance is the full amount due at any time during the duration of the mortgage, and is the sum of the remaining principal owed, as well as accrued interest. A mortgage balance is used when calculating the equity in a home.
When to Pay Off Your Mortgage Balance
Once a year, homeowners will receive a mortgage statement that states their mortgage balance, as well as the amount paid for the year and the interest charged.
Homeowners are also free to contact their bank at any time to inquire about their current mortgage balance, though banks often charge a fee for providing the information. Nowadays, however, most homeowners can have online access to their mortgage balance for free.
Many sites have mortgage calculators that allow homeowners to estimate their mortgage balance. These online tools allow homeowners to estimate the remaining balance of their loan based on either the number of payments they’ve already made, or the number of payments remaining.
To use a mortgage calculator, the homeowner must enter the original mortgage principal, annual interest rate, term years, and the monthly payment. Then choose one of the three options for calculating the number of mortgage payments made to determine the remaining balance. The options include the month and year, the number of payments made and the number of payments remaining.
Questions about mortgage balances often arise when people contemplate paying off the loan.
According to a study entitled “Baby Boomers and Their Homes: On Their Own Terms” by the Demand Institute, the median outstanding mortgage balance for the baby boomer generation, those born between 1954 and 1964, has grown 142% since 1992, from $48,743 to $118,000. This gap cuts into the retirement income of these homeowners, which seems to be an argument in favor of paying off the mortgage balance.
“While there is no one correct answer, late middle-aged Americans should think twice before rushing to pay off their mortgage balance. If cash flow is a major problem and, due to the constraints of having a monthly mortgage payment are causing you to accrue additional debt, then considering paying off the mortgage is likely a good idea,” says Brandon Redman, a financial planner at Securian Advisors in Seattle.
“First, the interest you pay is most often tax-deductible, and second, the interest rate you’re paying is likely quite low. Additionally, the home asset you’ve borrowed for is generally an appreciating asset. If you’re able to invest the funds you’d use to pay off the mortgage and achieve a return of 5 to 7% or more in a tax-deferred account like your Roth or Traditional IRA, you should consider keeping those funds invested, instead of paying off very low-rate, tax-deductible borrowed money on an appreciating asset.”