Optimize your homeownership journey by calculating how much time and interest you can save with a consistent extra monthly payment.
Extra Mortgage Payment Calculator
Extra Mortgage Payment Calculator Formula
The core of this calculation involves solving for the standard fixed monthly payment (M) and then iteratively calculating the new amortization schedule with the additional monthly payment (E) added.
Standard Monthly Payment (M) Formula:
Where:
- P = Principal Loan Amount
- i = Monthly Interest Rate (Annual Rate / 12)
- n = Total number of months (Term in Years * 12)
Formula Sources: Investopedia (Loan Payment), CFPB (Mortgage Info)
Variables Explained
- Loan Amount: The initial principal balance borrowed for the mortgage.
- Annual Interest Rate: The nominal interest rate applied to the loan, expressed as a percentage.
- Original Loan Term (Years): The planned repayment period for the loan (e.g., 15, 30 years).
- Monthly Extra Payment: The fixed amount of money you intend to add to your standard monthly payment. This amount directly reduces the principal.
What is an Extra Mortgage Payment?
An extra mortgage payment, also known as a principal-only payment, is any amount of money paid toward your loan above the required monthly amount. Since the regular payment already covers the current interest due, any additional funds are immediately applied to the principal balance of the loan.
This simple act has a powerful compounding effect: reducing the principal means that less interest accrues during the next payment period. Over the life of a long-term loan like a mortgage, this can drastically reduce the total interest paid and shorten the time it takes to become debt-free.
How to Calculate Extra Mortgage Payment Savings (Example)
Assume a $200,000 loan at 4.0% interest over 30 years. The standard monthly payment is $954.83.
- Determine the Original Financial Obligation: Calculate the original total interest paid over 360 months (30 years).
- Set the New Payment: Decide on a fixed extra amount, for example, $100 per month. The new total payment becomes $954.83 + $100 = $1,054.83.
- Recalculate Amortization: Run a new amortization schedule using the increased payment amount. In each payment, the interest portion is calculated on the remaining principal, and the remainder is applied to the principal.
- Find the New Term: The calculation stops when the principal balance reaches zero. The new, shorter term is counted in months.
- Calculate Savings: Subtract the total interest paid in the new, shorter schedule from the original total interest. The difference is the interest saved. The difference in term (months) is the time saved.
Frequently Asked Questions (FAQ)
Q: Should I pay extra principal or invest the money?
A: It depends on your mortgage interest rate versus your potential investment return. If your mortgage rate is high (e.g., 7% or more), paying down the principal offers a guaranteed, risk-free return equal to that rate. If your mortgage rate is low (e.g., 3-4%) and you are comfortable with risk, investing might yield a higher return over the long term.
Q: Does an extra payment automatically reduce my principal?
A: Yes, but you must specify. Some lenders will automatically apply any overage to the next month’s payment. Always explicitly mark the extra amount as a “Principal Reduction Payment” to ensure it directly lowers your balance and starts saving you interest immediately.
Q: How much will an extra $50 per month save me?
A: Use the calculator above! Even small, consistent amounts create significant savings. For a typical $250,000, 30-year loan at 5.5%, an extra $50/month can save over $18,000 in interest and shorten the term by about 2 years.
Q: Can I make a one-time extra payment?
A: Absolutely. While a recurring monthly payment provides the greatest savings, any extra payment (e.g., a year-end bonus) will immediately reduce your principal and start saving you money.