Use this tool to determine how much money you can save and how much faster you can pay off your loan by adding an extra amount to your regular monthly mortgage payment.
Mortgage Calculator Extra Payment
Mortgage Calculator Extra Payment Formula
1. Standard Monthly Payment (M):
$$M = P \frac{i (1+i)^n}{(1+i)^n – 1}$$
2. New Payoff Period:
Calculated using an amortization schedule (iterative calculation) until the Principal balance reaches zero, using the new total monthly payment: $M_{new} = M + E$ (Extra Payment).
Variables Used
- Loan Amount (P): The initial principal balance of the mortgage.
- Annual Interest Rate (R): The yearly interest rate applied to the loan.
- Loan Term (N): The initial number of years over which the loan is repaid.
- Extra Monthly Payment (E): The additional fixed amount paid on top of the standard monthly payment.
What is a Mortgage Extra Payment?
An extra payment in the context of a mortgage is any amount paid in excess of the required minimum monthly payment. Since mortgage payments are first applied to interest, and the remainder to principal, any additional money paid is applied directly to reduce the principal balance.
This simple act has a powerful compounding effect: by reducing the principal earlier, less interest accrues on the remaining balance in subsequent months. Over the lifetime of a long-term loan, this can result in substantial savings in total interest paid and significantly shorten the loan’s term.
How to Calculate Mortgage Extra Payment Savings (Example)
Suppose you have a \$200,000 loan at 6.0\% interest over 30 years, and you decide to add \$100 to your monthly payment.
- Calculate Standard Monthly Payment (M): For this example, M is \$1,199.10.
- Determine Total Interest (Standard): Over 30 years, the total interest paid would be \$231,675.24.
- Calculate New Monthly Payment: \$1,199.10 + \$100 = \$1,299.10.
- Run Amortization Schedule: Recalculate the payoff using the new \$1,299.10 payment.
- Find New Term and Savings: The loan pays off in approximately 25 years and 3 months. This saves 4 years and 9 months, and the total interest saved is \$32,840.
Related Calculators
- Amortization Schedule Calculator
- Mortgage Refinance Breakeven Calculator
- Rent vs. Buy Comparison Tool
- Bi-weekly Mortgage Payment Calculator
Frequently Asked Questions (FAQ)
Is an extra payment always applied to the principal?
In most standard mortgages, yes. However, you should always notify your lender that the extra funds are intended for principal reduction, not for pre-paying future installments or escrow, to ensure you realize the savings.
Should I pay extra or invest the money?
This is often a financial debate. Paying extra guarantees you a return equal to your mortgage interest rate (a risk-free return). Investing offers the potential for higher returns but comes with market risk. High-interest mortgages usually make extra payments a compelling choice.
Does a small extra payment make a difference?
Absolutely. Even an extra \$50 per month on a 30-year mortgage can save thousands in interest and cut several months off the loan term due to the power of compound interest working in reverse.
What is the best way to make an extra payment?
The most effective strategy is to make a fixed extra payment monthly. Another popular option is making a single lump sum payment once a year (like with a tax refund or annual bonus).