Use this calculator to determine how much interest and time you can save by making additional principal payments toward your mortgage.
Mortgage Early Repayment Calculator
Mortgage Early Repayment Calculator Formula
1. Original Monthly Payment (M):
$$M = P \frac{i(1+i)^n}{(1+i)^n – 1}$$2. New Number of Periods ($n_{new}$):
$$n_{new} = -\frac{\ln(1 – \frac{i \times P}{M_{new}})}{\ln(1 + i)}$$Where:
- $P$: Initial Loan Principal
- $i$: Monthly Interest Rate (Annual Rate / 1200)
- $n$: Original Number of Payments (Term in Months)
- $M$: Original Monthly Payment
- $M_{new}$: New Monthly Payment ($M + Extra Payment$)
- $\ln$: Natural Logarithm
Formula Source: Investopedia, Bankrate.
Variables
The calculator uses the following key financial variables:
- Initial Loan Principal: The starting amount of the mortgage loan.
- Annual Interest Rate (%): The yearly interest percentage applied to the loan.
- Original Loan Term (Years): The planned duration of the loan, typically 15 or 30 years.
- Extra Monthly Payment ($): The additional amount you plan to pay toward the principal each month.
Related Calculators
- Amortization Schedule Calculator
- Refinance Savings Calculator
- Debt Consolidation Savings Tool
- Future Value of Annuity Calculator
What is Mortgage Early Repayment Calculator?
A Mortgage Early Repayment Calculator is a financial tool used to visualize the impact of making additional payments on your home loan. By inputting your current loan details and a proposed extra payment amount (either one-off or monthly), the calculator determines the new, shortened loan term and the total interest savings achieved.
The core mechanism involves recalculating the amortization schedule. Every dollar paid above the scheduled minimum goes directly towards reducing the principal balance. Since interest is calculated on the remaining principal, lowering that balance sooner dramatically reduces the total interest accrued over the life of the loan. This is one of the most effective strategies for saving money on a mortgage.
How to Calculate Mortgage Early Repayment (Example)
Assume a \$200,000 loan at 5.0% for 30 years, with an extra \$50 monthly payment.
- Determine Monthly Interest Rate (\(i\)): Divide the annual rate by 1200: \(5.0 / 1200 = 0.0041667\).
- Calculate Original Monthly Payment (\(M\)): Using the PMT formula, the required monthly payment is \$1,073.64.
- Determine New Monthly Payment (\(M_{new}\)): Add the extra payment: \(\$1,073.64 + \$50.00 = \$1,123.64\).
- Calculate New Term (\(n_{new}\)): Use the NPER formula with the new payment amount. The new term is approximately 323 payments (26.9 years) instead of 360 payments (30 years).
- Calculate Interest Saved: Subtract the total new interest from the total original interest to find the savings. In this case, the savings would be substantial due to the reduced term.
Frequently Asked Questions (FAQ)
Can I deduct the extra principal payment on my taxes?
No. While the interest portion of your regular payment is often tax-deductible (up to certain limits), extra payments made directly towards the principal are not tax-deductible.
Is there a penalty for early repayment?
Some mortgages, particularly non-conforming or subprime loans, may have a prepayment penalty clause. It is essential to check your mortgage agreement before making significant extra payments.
How often should I make extra payments?
Monthly extra payments offer the highest interest savings because they reduce the principal earlier and more frequently. Even small, consistent payments can make a huge difference over the loan’s lifetime.
Does this calculator account for escrow and insurance?
No, this calculator focuses solely on the principal and interest components of the loan payment, as extra payments only affect the principal balance, not escrow (taxes and insurance).