Accurately calculate your required monthly mortgage payment and discover how much time and money you can save by making extra principal payments.
Mortgage Payment Calculator with Early Payoff
New Payoff Term
Original Term:
Mortgage Payment Calculator Early Payoff Formula
1. Monthly Payment (M):
$$ M = P \cdot \frac{r(1+r)^{n}}{(1+r)^{n}-1} $$2. New Payoff Period ($n’$):
$$ n’ = \frac{-\log\left(1 – \frac{r \cdot P}{M+E}\right)}{\log(1+r)} $$Where $P$ is Principal, $r$ is monthly rate, $n$ is total months, $M$ is original payment, and $E$ is extra payment.
Formula Sources: Investopedia, Bankrate.
Variables Explained
- **Loan Principal:** The initial borrowed amount of money.
- **Annual Interest Rate:** The yearly percentage charged on the remaining principal.
- **Original Loan Term (Years):** The intended length of the mortgage, typically 15 or 30 years.
- **Extra Monthly Principal Payment:** The additional amount you plan to pay each month directly to the principal to accelerate the payoff.
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What is Mortgage Payment Early Payoff?
An early mortgage payoff strategy involves paying more than your scheduled monthly payment directly toward the principal balance of the loan. Since mortgage interest is calculated on the remaining principal, reducing the principal balance faster means less interest accrues over the life of the loan. This simple method can result in tens of thousands of dollars in savings and significantly shorten your loan term.
The calculated early payoff term represents the new, accelerated timeline for loan completion. The calculator first determines your required minimum monthly payment and then factors in your proposed extra payment to solve for the reduced number of months needed to zero out the debt. It’s a powerful visualization tool for achieving financial freedom sooner.
How to Calculate Early Payoff (Example)
- **Determine Variables:** Start with a $200,000 principal (P), 4.0% annual rate (R), and 30-year term (N).
- **Calculate Monthly Rate (r):** $r = 0.04 / 12 = 0.003333$.
- **Calculate Original Payment (M):** Using the formula, the minimum payment M is approximately $954.83.
- **Add Extra Payment:** Assume an extra monthly payment (E) of $200. The new effective payment is $M’ = 954.83 + 200 = 1,154.83$.
- **Solve for New Term ($n’$):** Use the $n’$ formula with $M’$. This will show the new term is approximately 22.8 years, saving over 7 years off the original term.
- **Calculate Interest Saved:** Compare the total interest paid over 30 years versus the interest paid over 22.8 years.
Frequently Asked Questions (FAQ)
Is making an early payment a guaranteed good idea?
Generally, yes, especially if your mortgage rate is high. However, if you have other debts with higher interest rates (like credit cards), it’s usually better to prioritize paying those off first. Also, ensure your lender doesn’t charge prepayment penalties.
Does an extra payment automatically go to principal?
Not always. You must explicitly instruct your lender in writing or via their online portal that the extra amount is to be applied directly to the principal balance. Otherwise, they might hold it to prepay future monthly installments.
What is the maximum extra payment I should make?
There is no maximum, but you should not deplete your emergency fund. Always maintain 3-6 months of living expenses in liquid savings before aggressively paying down the mortgage.
How much can I save on a 30-year mortgage?
The savings are substantial. For a typical $250,000 loan at 5%, paying just $100 extra per month can shave over 4 years off the term and save over $20,000 in total interest.