Reviewed by David Chen, CFA. Specialized in Fixed Income and Personal Finance analysis.
Use the Early Mortgage Payoff Calculator to determine how much time and total interest you can save by making additional principal payments toward your home loan.
Early Mortgage Payoff Calculator
Total Interest Saved
Time saved: 0 years, 0 months.
Detailed Payoff Calculation Steps
Early Mortgage Payoff Calculation Formulas
$N_{new} = \frac{\log(\frac{M_{new}}{M_{new} – P \times r})}{\log(1 + r)}$
$I_{saved} = (M_{orig} \times N) – (M_{new} \times N_{new}) + (P \times N_{new})$
Formula Sources: Investopedia, Consumer Financial Protection Bureau (CFPB)
Variables Used in the Calculator
- Original Loan Amount ($): The initial principal balance of your mortgage.
- Annual Interest Rate (%): The annual rate stated on your loan documents (e.g., 5.0).
- Original Loan Term (Years): The original scheduled length of the loan in years (e.g., 30 or 15).
- Extra Monthly Payment ($): The additional amount of money you intend to pay toward the principal each month.
What is an Early Mortgage Payoff Calculator?
An Early Mortgage Payoff Calculator is a financial tool designed to illustrate the savings and time reduction achieved by accelerating your mortgage payments. By consistently paying more than the required minimum monthly amount, you effectively reduce the principal balance faster.
This reduction in principal means less interest accrues over the life of the loan. The calculator uses the standard amortization formula to determine a new, shorter loan term and quantifies the total interest expense you avoid, allowing you to visualize the long-term impact of seemingly small, regular extra payments.
It’s an essential tool for personal financial planning, helping homeowners make informed decisions about their debt repayment strategy and build equity faster.
Related Financial Calculators
- Mortgage Refinance Savings Calculator
- Debt-to-Income Ratio Calculator
- Compound Interest Calculator
- Amortization Schedule Creator
How to Calculate Early Mortgage Payoff (Step-by-Step Example)
Let’s use an example: $200,000 principal, 5% rate, 30-year term, and $100 extra payment.
- Determine the Monthly Rate (r): 5.0% / 12 = 0.0041667 (or 0.41667%).
- Calculate Original Monthly Payment ($\mathbf{M_{orig}}$): Using the amortization formula, the payment for a 30-year, $200,000 loan at 5% is $1,073.64.
- Determine New Monthly Payment ($\mathbf{M_{new}}$): Add the extra principal payment: $1,073.64 + $100.00 = $1,173.64.
- Calculate New Loan Term ($\mathbf{N_{new}}$): Use the loan term formula with the new payment amount. In this case, the term would reduce from 360 months (30 years) to approximately 309 months.
- Calculate Total Interest Saved ($\mathbf{I_{saved}}$): Subtract the total interest paid under the new term from the total interest paid under the original term. This amount represents the full financial benefit of the accelerated payoff.
Frequently Asked Questions (FAQ)
What is the difference between an extra payment and a prepayment?
An extra payment is an additional amount added to your required monthly payment. A prepayment is usually a lump-sum payment made at any time to reduce the principal balance, often used interchangeably with “extra payment” when done regularly.
Will making extra payments affect my credit score?
No, making extra payments does not directly affect your credit score in a negative way. It reduces your debt and can help your overall financial health, indirectly improving your credit profile over time.
Is it better to pay off my mortgage early or invest the money?
This is highly debated. Paying off early guarantees a return equal to your mortgage interest rate (a risk-free return). Investing offers potentially higher returns but comes with market risk. This calculation helps you determine the guaranteed savings.
Does a bi-weekly payment schedule count as an early payoff strategy?
Yes. A bi-weekly payment plan results in 26 half-payments, which is equivalent to 13 full monthly payments per year. This “extra” payment significantly accelerates the payoff and reduces total interest.