Use the early payoff mortgage calculator to quickly determine how much time and interest you can save by making extra monthly payments on your home loan.
Early Payoff Mortgage Calculator
Early Payoff Mortgage Calculator Formula
The core calculation involves two main steps: determining the required monthly payment (M) and then finding the new term (n’) using the increased payment (M’).
Where:
- \(i\) = Monthly Interest Rate (\(I/1200\))
- \(P\) = Principal Loan Amount
- \(n\) = Original Loan Term in Months
- \(M\) = Original Monthly Payment
- \(E\) = Extra Monthly Payment
- \(n’\) = New Loan Term in Months
Formula Source: Investopedia – Mortgage Payment Formula, Bankrate – Calculating Payments
Variables Explained
- Loan Principal: The initial amount of money borrowed for the mortgage.
- Annual Interest Rate: The nominal interest rate charged by the lender, expressed as a percentage.
- Original Loan Term: The length of time, in years, over which the loan was originally scheduled to be repaid (e.g., 15 or 30 years).
- Extra Monthly Payment: The additional, voluntary amount you intend to pay above your required monthly payment (M).
Related Calculators
Explore other tools that can help manage your home financing decisions:
- Mortgage Refinance Breakeven Calculator
- Simple Loan Amortization Tool
- Bi-Weekly Payment Savings Calculator
- Home Equity Line of Credit Cost Estimator
What is Early Payoff Mortgage Calculator?
An early payoff mortgage calculator is a financial tool that helps homeowners determine the benefits of accelerating their mortgage repayment schedule. By inputting details like the principal loan amount, interest rate, original term, and any planned extra monthly payments, the calculator models how quickly the loan will be paid off and quantifies the total interest saved over the life of the loan.
Making additional principal payments, even small ones, can have a dramatic compounding effect. Because mortgage interest is calculated on the remaining principal balance, reducing the principal faster means less interest accrues each month. This tool visualizes that benefit, providing clear figures for time and money saved, which is crucial for financial planning.
How to Calculate Early Payoff Savings (Example)
Let’s use an example: a $200,000 loan at 5% for 30 years with an extra $150 per month.
- Determine Monthly Rate (i): \(5\% / 1200 = 0.0041667\). Original term (n) is \(30 \times 12 = 360\) months.
- Calculate Original Monthly Payment (M): Using the formula, M comes out to approximately $1,073.64.
- Calculate New Total Payment (M’): \(M + \text{Extra} = \$1,073.64 + \$150.00 = \$1,223.64\).
- Calculate New Term (n’): Plug the new payment (M’) into the new term formula. The new term is approximately 283.6 months.
- Find Months Saved: \(360 – 283.6 = 76.4\) months (or about 6 years and 4 months).
- Calculate Total Interest Saved: Original Interest: \((1073.64 \times 360) – 200,000 = \$186,510.40\). New Interest: \((1223.64 \times 283.6) – 200,000 = \$147,061.26\). Savings: \(\$186,510.40 – \$147,061.26 = \$39,449.14\).
Frequently Asked Questions (FAQ)
A: For this calculator, we assume a consistent extra payment amount. In reality, you can pay different amounts, but consistent payments make the calculation simple and the savings more predictable.
A: This is a classic financial dilemma. The decision depends on comparing your mortgage’s interest rate (guaranteed return) with the potential return on investment (riskier). If your investment return is higher than your interest rate, investing usually wins, but paying off the mortgage offers a guaranteed, risk-free return.
A: Some older or non-conventional mortgages may include a prepayment penalty. It is crucial to check your loan agreement or contact your lender to confirm if any fees apply before making large, extra payments.
A: A bi-weekly schedule results in 13 full monthly payments per year, which is equivalent to making one extra monthly payment annually, achieving a similar but slightly smaller early payoff benefit than a consistent, large extra monthly payment.