This calculator helps you determine how much money and time you can save by making extra principal payments on your fixed-rate mortgage.
Mortgage Calculator with Extra Principal
Key Result: Interest Saved
Original Term: 30 Years (360 payments). New Term: 30 Years (360 payments).
Detailed Amortization Summary
Mortgage Calculator with Extra Principal Formula
The standard monthly mortgage payment (M) is calculated first, based on the original loan terms:
$$M = P \frac{i(1+i)^n}{(1+i)^n – 1}$$Where:
- $P$ is the principal loan amount.
- $i$ is the monthly interest rate ($r / 12$).
- $n$ is the total number of payments (Term in years $\times 12$).
The extra principal payment is then added to the calculated standard principal portion of M each month to accelerate the loan payoff. The actual interest saved is determined by simulating the amortization schedule month-by-month.
Formula Sources:
Variables
- Original Loan Amount ($): The total amount borrowed from the lender.
- Annual Interest Rate (%): The yearly interest rate charged on the loan.
- Loan Term (Years): The total number of years the loan is scheduled to last (e.g., 15 or 30 years).
- Extra Principal Payment (Monthly $): The fixed additional amount paid on top of the minimum monthly payment, dedicated entirely to reducing the principal balance.
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What is mortgage calculator with extra principal?
A mortgage calculator with extra principal is a specialized financial tool that models the impact of paying more than the required minimum payment each month on a fixed-rate mortgage. By adding a fixed, extra amount specifically to the loan’s principal, borrowers can significantly reduce the total term of the loan and the amount of interest paid over its lifetime.
The primary benefit modeled by this calculation is the accelerated payoff. Since interest is calculated daily on the remaining principal balance, any additional payment that immediately lowers the principal starts saving the borrower money from the moment the payment is processed. This compounding effect, where less principal leads to less interest, snowballs over the years.
Using this calculator helps a homeowner visualize the direct financial trade-off: spending a small extra amount monthly now to save potentially tens of thousands of dollars in future interest and shorten a 30-year obligation down to 25 or even 20 years.
How to Calculate Mortgage Savings (Example)
- Determine Standard Payment (M): Calculate the minimum monthly payment based on the original loan amount, rate, and term (e.g., $300,000 at 6% for 30 years results in $1,798.65).
- Set Extra Payment (E): Define the fixed amount you plan to pay monthly (e.g., an extra $200).
- Simulate Amortization: For each month, the total payment will be $M + $E. The interest for the month is calculated on the remaining balance. The *rest* of the payment goes to principal.
- Track Payoff: Continue the simulation until the principal balance reaches zero. Note the total number of payments made (N’).
- Calculate Savings:
- Time Saved: Original Term (360 months) – New Term (N’).
- Interest Saved: Total Interest Paid (Standard Amortization) – Total Interest Paid (New Amortization).
Frequently Asked Questions (FAQ)
What is “extra principal” and how does it work?
Extra principal is any amount you pay in addition to your required monthly minimum payment that is specifically designated by your lender to immediately reduce the outstanding loan balance. By reducing the principal, you reduce the base on which future interest is calculated.
Is there a penalty for making extra principal payments?
Most modern, conventional mortgages do not have prepayment penalties. However, you should always check your specific loan documents, especially for older mortgages or non-conforming loans, to ensure you are not subject to any fees.
Should I pay extra principal or invest the money?
This is often a personal finance decision. Paying extra principal guarantees a “return” equal to your mortgage interest rate (which is risk-free). Investing offers the potential for a higher return but comes with market risk. Generally, paying off high-interest debt is a safe and effective financial move.
What is the best way to ensure my extra payment goes to principal?
When submitting an overpayment, you must clearly instruct your mortgage servicer that the extra funds are to be applied directly to the principal balance, and not held as a prepayment toward a future minimum payment.