Use the Pay Off Mortgage Early Calculator to determine your potential time and interest savings by adding an extra amount to your regular monthly mortgage payment.
Pay Off Mortgage Early Calculator
Congratulations! You will pay off your mortgage
Time Saved: —
Interest Saved: —
Pay Off Mortgage Early Calculator Formula
1. Monthly Interest Rate (r):
$$r = \frac{\text{Annual Interest Rate}}{1200}$$2. Original Monthly Payment (M):
$$M = P \frac{r(1+r)^T}{(1+r)^T – 1}$$3. New Loan Term in Months ($\boldsymbol{T_{new}}$):
$$T_{new} = \frac{\ln(M + E) – \ln((M+E) – P \cdot r)}{\ln(1+r)}$$Formula Source: Investopedia, CFPB
Variables Explained
- Current Principal Balance (P): The outstanding loan amount remaining to be paid.
- Annual Interest Rate (R): The nominal yearly interest rate of the mortgage, expressed as a percentage.
- Original Loan Term (N): The initial length of the loan (e.g., 30 years).
- Extra Monthly Payment (E): The additional fixed amount you intend to add to your required monthly payment (M).
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- Amortization Schedule Calculator
- Rent vs. Buy Calculator
- Home Equity Loan Calculator
What is “Pay Off Mortgage Early”?
Paying off a mortgage early means making additional payments beyond your scheduled monthly installment. This extra money goes directly toward reducing the principal balance of your loan. Since interest is calculated daily or monthly on the outstanding principal, reducing the principal balance faster means less interest accrues over the life of the loan.
The most significant benefit is the massive reduction in total interest paid, potentially saving tens of thousands of dollars. It also gives the homeowner financial freedom sooner, eliminating a major debt obligation and freeing up cash flow. Even small, consistent extra payments can shave years off a 30-year term.
How to Calculate Early Payoff (Example)
Let’s use a step-by-step example with $250,000 principal, 6.5% rate, 30-year term, and $100 extra payment:
- Determine Monthly Interest Rate: $6.5\% / 1200 = 0.0054167$
- Calculate Original Monthly Payment (M): Using the formula, M is approximately $1,580.17.
- Calculate Total New Payment: $1,580.17 (\text{M}) + 100 (\text{E}) = \$1,680.17$.
- Determine New Term ($\boldsymbol{T_{new}}$): Use the log formula with the new payment $1,680.17$. This results in a new term of approximately $309.8$ months.
- Calculate Time Saved: Original term is $30 \text{ years} \times 12 = 360 \text{ months}$. $360 – 309.8 = 50.2$ months saved, or about 4 years and 2 months.
- Calculate Interest Saved: Original total interest was approx. $\$318,860$. New total interest is approx. $\$270,170$. Interest saved is $\mathbf{\$48,690}$.
Frequently Asked Questions (FAQ)
Should I pay off my mortgage early or invest the extra money?
This depends on your risk tolerance and the difference between your mortgage rate and expected investment return. If your mortgage rate is high (e.g., above 6-7%), paying it off is often a guaranteed return equivalent to that rate.
Are there penalties for paying off a mortgage early?
Most standard mortgages in the U.S. do not have prepayment penalties, but you should always check your specific loan documents to be sure, especially if it’s a non-standard or subprime loan.
What is the best way to make an extra payment?
The most effective methods are: adding a fixed extra amount to your monthly payment, making one extra principal payment each year, or switching to bi-weekly payments.
Does a bi-weekly payment schedule count as paying off early?
Yes. By paying half your monthly payment every two weeks, you effectively make 13 full monthly payments per year instead of 12, naturally accelerating your payoff.