Mortgage Loan Payoff Calculator

Reviewed and Verified by: David Chen, CFA

Use the Mortgage Loan Payoff Calculator to determine how much time and interest you can save by making extra principal payments on your home loan. Understand the true cost of your mortgage and accelerate your path to debt freedom.

Mortgage Loan Payoff Calculator

Mortgage Loan Payoff Calculator Formula

The calculation involves two main steps: determining the base monthly payment and then determining the new loan term with the extra payment applied.

1. Standard Monthly Payment (M)

$$M = P \frac{r(1+r)^n}{(1+r)^n – 1}$$

2. New Term (n’) with Extra Payment (E)

$$n’ = \frac{\log(\frac{M+E}{(M+E) – P \cdot r})}{\log(1+r)}$$

Where:

• $P$ = Principal (Initial Loan Amount)
• $r$ = Monthly Interest Rate ($R / 1200$)
• $R$ = Annual Interest Rate (%)
• $n$ = Original Term in Months ($T \times 12$)
• $M$ = Standard Monthly Payment
• $E$ = Extra Monthly Principal Payment

Formula Sources: Investopedia – Amortization, The Balance – Mortgage Calculations

Variables

The calculator uses the following variables:

• Loan Amount: The initial principal balance of your mortgage.
• Annual Interest Rate: The nominal annual interest rate (e.g., 5.5).
• Original Loan Term: The total length of the loan in years (e.g., 30).
• Extra Monthly Principal Payment: The fixed amount you plan to pay in addition to your standard payment each month.

What is a Mortgage Loan Payoff Calculator?

A Mortgage Loan Payoff Calculator is a financial tool designed to illustrate the benefits of accelerating your mortgage repayment schedule. By inputting your loan details and an intended extra payment amount, the calculator determines your new, shorter loan term and the total interest savings over the life of the loan.

This tool is essential for homeowners looking to aggressively pay down debt. It demonstrates the compounding effect of even small extra payments—since nearly all of the extra funds go directly to reducing the principal, you drastically cut down the amount of interest charged on the loan balance in subsequent periods. It turns a long-term debt into a manageable, shorter-term financial goal.

How to Calculate Mortgage Payoff (Example)

1. Identify Inputs: Loan Amount (P) = $200,000; Annual Rate (R) = 4%; Original Term (T) = 30 years; Extra Payment (E) = $150.
2. Calculate Monthly Rate and Term: Monthly Rate ($r$) = 0.04 / 12 = 0.003333; Total Months ($n$) = 30 * 12 = 360.
3. Determine Standard Payment ($M$): Plug P, r, and n into the standard formula to find the base payment, which is approximately $954.83.
4. Determine New Effective Payment ($M’$): $954.83 + $150 = $1,104.83.
5. Calculate New Term ($n’$): Use the log-based formula with the new payment $M’$ to find the new number of months, which results in approximately 296 months (or 24.67 years).
6. Find Savings: The total interest saved is calculated by comparing the total payments over 360 months vs. 296 months.

Frequently Asked Questions (FAQ)

How much does a $100 extra payment save me?

The amount saved depends heavily on your current principal balance and interest rate. For a standard 30-year, $250,000 loan at 5.5%, an extra $100 per month can save over $32,000 in interest and shorten the loan term by nearly four years.

Is it better to invest or pay off my mortgage early?

This is a financial planning question. Paying off a mortgage offers a guaranteed return equal to your interest rate (risk-free savings). Investing offers a potentially higher return but with market risk. Many experts recommend a balance between the two, often prioritizing high-interest debt first.

Do I need to notify my lender about extra principal payments?

Yes, always specify on your payment that the extra amount should be applied directly to the principal balance. Otherwise, the lender may hold the funds or apply them toward future interest, defeating the purpose of acceleration.

What is the earliest you can pay off a 30-year mortgage?

The loan can technically be paid off at any time, often with a significant lump sum payment. Consistent, slightly larger monthly payments can cut the term down to 15 or 20 years without drastic changes to your monthly budget.

Related Calculators

Amortization Schedule Calculator | Debt-to-Income Ratio Tool | Refinance Savings Calculator | Loan Affordability Estimator