Ramsey Mortgage Payoff Calculator

Reviewed for Financial Accuracy: This calculator and content have been reviewed by David Chen, CFA.

This **Ramsey Mortgage Payoff Calculator** helps you determine how much time and interest you can save by making extra payments towards your mortgage principal. Discover your path to becoming debt-free sooner.

Ramsey Mortgage Payoff Calculator

Your Mortgage Payoff Results

Detailed Calculation Steps

Ramsey Mortgage Payoff Calculator Formula

The core calculation relies on the standard amortization formula, solving for the number of payments required with the new, higher payment amount ($M_{new}$).

$$M = P \cdot \frac{r(1+r)^N}{(1+r)^N – 1}$$ $$N_{new} = \frac{-\ln(1 – \frac{P \cdot r}{M_{new}})}{\ln(1 + r)}$$ Where: $P$ = Principal, $r$ = Monthly Rate, $N$ = Original Months, $M$ = Monthly Payment, $M_{new}$ = New Monthly Payment ($M + \text{Extra}$), and $N_{new}$ = New Term in Months. Formula Source: Investopedia – Mortgage Formula

Variables Explained

Understanding the key variables is essential for an accurate payoff calculation:

• Original Loan Amount (P): The initial amount borrowed. Extra payments are applied directly against this remaining balance.
• Annual Interest Rate (R): The yearly rate charged by the lender. This is converted to a monthly rate ($r$) for the calculation.
• Original Loan Term (T): The length of the loan in years (e.g., 15 or 30). This determines the total number of original payments ($N$).
• Extra Monthly Payment (E): The fixed amount added to your required monthly payment, accelerating the payoff.

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What is Ramsey Mortgage Payoff?

The concept of an accelerated mortgage payoff, popularized by financial experts like Dave Ramsey, centers on the idea of prioritizing debt elimination to build wealth faster. By adding extra payments—even small ones—directly to the loan’s principal, you reduce the balance on which interest is calculated immediately. This small change has a compounding effect, saving thousands in interest over the life of the loan.

Unlike bi-weekly payment schemes, which only add one extra payment per year, the “Ramsey” approach encourages finding extra money (e.g., from budgeting, side hustles, or selling items) and applying it strategically to your highest priority debt (often the mortgage). The calculator quantifies this philosophy, showing the tangible reward (time and money saved) for consistent, aggressive principal reduction.

The primary benefit is not just the interest saved, but the psychological boost and financial freedom gained from eliminating the largest liability, allowing the homeowner to move on to higher-level wealth-building steps.

How to Calculate Ramsey Mortgage Payoff (Example)

Assume an initial loan of $200,000 at 4.5% for 30 years, with an extra $100 payment each month.

1. Calculate Monthly Rate (r): $4.5\% / 12 / 100 = 0.00375$.
2. Determine Original Term (N): $30 \text{ years} \times 12 \text{ months/year} = 360 \text{ payments}$.
3. Calculate Original Monthly Payment (M): Using the first amortization formula, the required payment is approximately $M = \$1,013.37$.
4. Determine New Monthly Payment ($M_{new}$): Add the extra payment: $\$1,013.37 + \$100.00 = \$1,113.37$.
5. Calculate New Term ($N_{new}$): Using the second amortization formula with $M_{new}$, the new term is calculated to be approximately $309.5$ months.
6. Calculate Time Saved: $360 \text{ months} – 309.5 \text{ months} = 50.5$ months, or over 4 years saved.
7. Calculate Interest Saved: Compare the total original interest paid to the total new interest paid ($N_{new} \cdot M_{new} – P$).

Frequently Asked Questions (FAQ)

How does the extra payment affect my tax deductions?

While you pay less interest overall, your annual mortgage interest deduction will also decrease since less interest is paid over the shortened loan term. You should consult a tax professional for specific advice on your situation.

Is this method better than investing?

This is a philosophical decision. Ramsey’s approach values the guaranteed, tax-free “return” of avoiding high-interest debt. Mathematically, investing might yield a higher return, but only if the market outperforms your mortgage rate consistently. Paying off the mortgage eliminates risk and provides peace of mind.

Can I make my extra payment bi-weekly instead?

Yes, but the impact shown here assumes a fixed extra amount added to the principal monthly. Bi-weekly payments effectively add one extra payment per year, but adding a consistent fixed extra amount monthly provides a greater, more predictable acceleration.

Does my lender allow extra principal payments?

Nearly all conventional mortgages allow extra principal payments without penalty, as required by law in most places. However, it’s crucial to specify to your lender that the extra amount should be applied *directly to the principal* and not as an early payment for the next month.