Fact-Checked and Reviewed by: David Chen, CFA
This calculator uses standard amortization formulas to project interest savings based on extra principal payments.
Use the Mortgage Early Payoff Calculator to determine how much money and time you can save by making additional principal payments toward your home loan.
Mortgage Early Payoff Calculator
Early Payoff Projection Summary
Mortgage Early Payoff Calculator Formula
The calculation is based on the standard monthly payment formula and solving for the new number of periods (n_new) when an extra payment is applied.
Original Monthly Payment ($M_{orig}$):
$M_{orig} = P \frac{r(1+r)^n}{(1+r)^n – 1}$
New Loan Term in Months ($n_{new}$):
$n_{new} = \frac{\ln\left(1 – \frac{P \cdot r}{M_{orig} + E}\right)}{\ln(1+r)}$
Where $P$ is Principal, $r$ is monthly rate (R/12), $n$ is original months, and $E$ is Extra Payment.
Formula Sources: Investopedia: Monthly Payment Formula, CFPB: Understanding Your Mortgage
Variables Explained
- Original Principal Loan Amount: The initial balance of your mortgage when you took it out.
- Annual Interest Rate (%): The stated annual percentage rate (APR) of your loan.
- Original Loan Term (Years): The total length of the loan, typically 15 or 30 years.
- Extra Principal Payment (Monthly $): The fixed additional amount you plan to pay each month directly toward the principal balance.
Related Calculators
- Loan Amortization Schedule Generator
- Mortgage Refinance Breakeven Calculator
- Bi-Weekly Mortgage Payment Calculator
- Debt-to-Income Ratio Calculator
What is Mortgage Early Payoff?
Mortgage early payoff is a strategy used by homeowners to reduce the total amount of interest paid over the life of the loan and shorten the loan term. It involves consistently making extra payments directly against the principal balance.
Because interest is calculated on the remaining principal, reducing the principal balance faster means less interest accrues in subsequent periods. Even small, consistent extra payments can result in tens of thousands of dollars in savings and cut years off the repayment schedule.
This calculator helps you visualize the impact of your extra payment strategy, providing a clear projection of your total interest savings and your new final payoff date.
How to Calculate Mortgage Early Payoff (Example)
Here is a step-by-step example of how the calculation works using sample data:
- Gather Data: Principal $300,000, Rate 6.0% (0.5% monthly), Term 30 years (360 months), Extra Payment $200.
- Calculate Original Payment ($M_{orig}$): Using the amortization formula, the original monthly payment is $1,798.65.
- Determine New Payment ($M_{new}$): Add the extra payment: $1,798.65 + $200.00 = $1,998.65.
- Calculate New Term ($n_{new}$): Use the loan term formula with the new payment to find $n_{new} \approx 308.8$ months (or ~25 years, 9 months).
- Find Savings: Calculate the original total interest paid ($300,000 \times 360 – 300,000$) and subtract the new total interest paid ($1,998.65 \times 308.8 – 300,000$). The difference is the total interest saved.
Frequently Asked Questions (FAQ)
A: No. Any amount paid consistently will help. Just ensure you specify in writing that the extra funds must be applied directly to the principal balance.
A: Most modern US mortgages do not have a prepayment penalty. However, you should check your loan documents (Note) to be absolutely sure before starting an aggressive payoff plan.
A: This is often a personal finance choice. Paying off the mortgage guarantees a return equal to your mortgage rate (risk-free). Investing offers the potential for higher returns but comes with market risk.
A: This calculator only focuses on the principal and interest portion of your loan. It assumes your escrow payment (for taxes and insurance) remains separate and unchanged.