Why extra payments work so well
Mortgage interest is charged on the balance you still owe. Early in a loan, most of each payment goes to interest, and only a small part reduces the balance. Any extra money you pay goes entirely to principal, which lowers the balance that every future month's interest is charged on. The savings then compound for the rest of the loan.
How to use this calculator
- Remaining Balance: what you still owe today (it's on your latest mortgage statement).
- Interest Rate: your loan's interest rate, not the APR.
- Years Left on the Loan: how many years remain on your current schedule. The calculator works out your principal-and-interest payment from these three numbers.
- Extra per Month and One-Time Lump Sum: the additional principal you plan to pay. You can use either or both.
The results compare your original schedule with the accelerated one: the new payoff time, the time and interest saved, and a chart of your remaining balance year by year.
Worked example
Using the default inputs: $250,000 left at 6.5% with 25 years to go. The regular payment is $1,688/month, and the remaining interest on the original schedule totals $256,405.
Adding $200 a month:
- The loan is paid off in 19 years 6 months instead of 25 years.
- Total interest drops to $191,477, saving $64,928.
A one-time $10,000 lump sum on its own (with no monthly extra) saves $36,982 in interest and 2 years 3 months.
The "13th payment" strategy
A popular approach is to make one extra monthly payment per year, which is the same as paying an extra 1/12 of your payment every month. In the example above, that's about $141 a month, and it pays the loan off 4 years 2 months early while saving $49,728 in interest. Paying half your payment every two weeks (biweekly payments) has a similar effect, because 26 half-payments add up to 13 full payments a year. If you go the biweekly route, check how your servicer handles it: make sure the extra money goes to principal rather than being held for next month's payment, and avoid third-party biweekly programs that charge fees. Adding 1/12 of your payment each month gets the same result with no setup.
The formula
Monthly payment M = P × i × (1 + i)^n / ((1 + i)^n - 1)
Each month interest = balance × i
balance = balance + interest - (M + extra)
Here P is the remaining balance, i the yearly rate divided by 12, and n the number of months left. The calculator repeats the monthly step until the balance reaches zero, for both the original and the accelerated schedule. A lump sum is subtracted from the balance before the first month. In the final month, you pay only what's left, so the balance ends at exactly zero.
Should you pay off your mortgage early?
Every extra dollar of principal effectively "earns" your mortgage's interest rate, with no market risk, which makes it more attractive the higher your rate is. (If you itemize deductions, paying less mortgage interest also means a smaller mortgage interest deduction.) It isn't automatically the best use of spare money, though. Before paying extra, many people first:
- Build an emergency fund, since money paid into your house is hard to get back out quickly.
- Pay off higher-interest debt, like credit cards (see the Debt Payoff calculator).
- Capture any employer retirement match, which is an instant return that's hard to beat.
If your mortgage rate is low, investing the extra money may come out ahead over time, but with market risk instead of a guaranteed return. The Opportunity Cost calculator can help you compare.
Assumptions and limitations
- Fixed-rate loan: the rate stays the same for the rest of the loan. Adjustable-rate mortgages will differ.
- Principal and interest only: property tax, insurance and PMI (often collected through escrow) aren't included, because extra payments don't change them.
- Extra goes to principal: most lenders apply extra payments to principal, but some require you to specify it. Check with your servicer, and confirm there's no prepayment penalty.
Frequently asked questions
Does paying extra lower my monthly payment?
No. On a standard fixed-rate mortgage, your required payment stays the same and the loan simply ends sooner. Some lenders offer a "recast" after a large lump sum, which lowers the payment instead of shortening the loan, usually for a fee.
Is a lump sum or a monthly extra payment better?
Money paid earlier saves more interest, so a lump sum today saves more than the same total spread out over years. In practice, the best option is whatever you can keep up. Steady monthly extras add up to large savings.
Where do I find my remaining balance and years left?
Your monthly mortgage statement or your servicer's website shows the current principal balance and your payoff or maturity date. Count the years from today to that date.