Reviewed and fact-checked by David Chen, CFA. Last updated: December 2025.
Use this powerful tool to calculate the time and interest savings you can achieve by making extra payments on your mortgage principal.
Calculate Early Payoff of Mortgage
Early Payoff Projection
Detailed Calculation Steps
Calculate Early Payoff of Mortgage Formula
The calculation involves two primary steps: determining the original monthly payment and then using the new total monthly payment to solve for the reduced loan term.
1. Calculate Original Monthly Payment ($M$):
$$M = P \left[ \frac{r(1+r)^N}{(1+r)^N - 1} \right]$$
2. Calculate New Term in Months ($N_{new}$):
$$N_{new} = \frac{\ln(M_{new}) - \ln(M_{new} - P \cdot r)}{\ln(1+r)}$$
Source: Investopedia, Bankrate
Variables Used in the Calculator
- Initial Principal ($P$): The current outstanding balance on your mortgage loan.
- Annual Interest Rate ($R$): The nominal annual interest rate (e.g., 6.5%). This is converted to a monthly rate ($r$) for calculation.
- Original Loan Term ($N$): The total number of years the loan was originally scheduled for (e.g., 30 years).
- Extra Payment ($E$): The fixed additional amount you plan to pay monthly directly toward the principal.
What is Calculate Early Payoff of Mortgage?
The “Early Payoff Calculation” is a financial projection that estimates how much sooner your mortgage will be fully retired, and how much total interest you will save, by making additional payments above the required minimum each month. This strategy is one of the most effective ways to reduce the overall cost of homeownership.
When you make an extra payment, that entire amount is immediately applied to the principal balance, rather than just the minimum payment’s small principal portion. This reduces the basis upon which future interest is calculated, setting off a powerful compounding effect that dramatically shortens the loan term.
This calculator specifically models a consistent, fixed extra payment added to the standard monthly payment. The resulting new term is often significantly shorter than the original, leading to tens of thousands of dollars in interest savings.
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How to Calculate Early Payoff of Mortgage (Example)
Let’s walk through the steps using an example: Principal $200,000, Rate 5%, Original Term 30 years, Extra Payment $100.
- Convert Variables: Annual Rate 5% becomes Monthly Rate $r = 0.05 / 12 \approx 0.004167$. Original Term 30 years becomes $N_{orig} = 360$ months.
- Calculate Original Monthly Payment: Using the formula, the standard payment $M$ for a 30-year, $200,000$ loan at $5\%$ is typically around $1,073.64$.
- Determine New Total Payment: Add the extra payment to the standard payment: $M_{new} = \$1,073.64 + \$100 = \$1,173.64$.
- Calculate New Term: Use the log formula to solve for the new number of months, $N_{new}$, using the new payment $M_{new}$. In this example, $N_{new}$ would be approximately $311.6$ months.
- Determine Time Saved: The time saved is $360 – 311.6 = 48.4$ months (or about 4 years).
- Calculate Interest Savings: Compare the total interest paid over 360 months vs. 311.6 months to find the savings.
Frequently Asked Questions (FAQ)
Is making extra principal payments always the best financial move?
It depends on your situation. If your mortgage rate is high, paying it down early is usually smart. However, if you have high-interest consumer debt (like credit cards) or lack an emergency fund, addressing those items first may be more beneficial.
Does every extra payment have to be the same amount?
No. While this calculator models a consistent monthly payment, you can make lump-sum payments or uneven extra payments whenever you have spare cash, such as tax refunds or work bonuses. Just be sure to always mark the payment for “principal only.”
What is the difference between “Interest Saved” and “Total Interest Paid”?
“Total Interest Paid” is the entire cost of borrowing over the life of the loan. “Interest Saved” is the difference between the total interest you would have paid under the original schedule and the new, lower total interest paid due to your early payments.
Does my lender charge a penalty for paying off my mortgage early?
Most standard U.S. mortgages do not have prepayment penalties. However, some non-conventional or older mortgages may, so you should always check your loan documents or contact your lender to confirm.