Extra mortgage payment calculator

How the formula works

A fixed-rate mortgage is amortized: you pay the same amount \(M\) every month, set so the balance reaches zero after \(N\) months. Interest is charged on the balance that remains, so early payments are mostly interest. The contract payment is:

where \(B\) is the balance, \(r\) the annual rate as a decimal and \(T\) the term in years. An extra payment does not have its own formula — the calculator simulates the payoff month by month — but the mechanism is exact. A dollar of principal paid today is a dollar that never accrues interest again. If it would otherwise have sat in the balance for \(k\) more months at monthly rate \(i\), paying it now skips:

The saving is geometric in \(k\): the longer the interest tail ahead of a dollar, the more paying it early is worth. That is why an extra payment made in year one saves far more than the same payment made in year twenty — early in the loan almost the whole term of compounding still lies ahead, so each dollar of principal you retire skips decades of interest rather than months. A lump sum applied now is simply the extreme case: a large slice of principal removed before it can accrue anything at all.

What each input means

Loan balance — \(B\)

What you owe today, not the original loan amount. If you are part way through the loan, use the current balance and the term remaining, and the calculator models the payoff from here.

Interest rate — \(r\)

The note rate on the loan, held fixed. On a fixed-rate mortgage the extra payment saves interest at exactly this rate — a guaranteed, tax-free return equal to the mortgage rate.

Remaining term — \(T\)

How many years are left on the schedule. It sets the contract payment; the extra and the lump sum then shorten the actual payoff from there.

Extra monthly payment

The amount you add to every payment, applied straight to principal. This is the steady lever — a modest amount, paid every month, compounds into years off the loan.

One-time lump sum

A single extra principal payment applied now — a bonus, a windfall, a tax refund. Because it lands before any of it can accrue interest, a lump sum early in the loan is the most powerful single move available.

A worked example

The worksheet's defaults: a $320,000 balance at 6.5% with 30 years remaining, paying $200 extra a month and no lump sum.

• Monthly rate: \(i = 0.065/12 = 0.005417\); over \(N = 360\) months the growth factor is \((1+i)^{360} = 6.9918\).
• Contract payment: $320,000 × 0.005417 × 6.9918 / (6.9918 − 1) = $2,022.62 a month. Left alone, that clears the loan in 360 months and $408,142 of interest.
• Add $200 a month — paying $2,223 instead of $2,022.62 — and the loan is gone in 281 months (23 yrs 5 mo) with $302,714 of interest.
• That extra retires the loan 6 yrs 7 mo early and saves $105,429 in interest — 6.6 years shaved off the term for $200 a month you never see charged back as interest again.

Assumptions and limits

• The rate is fixed for the whole term. An ARM reprices; this model does not.
• The extra goes entirely to principal. Confirm this with your servicer — some apply an overpayment to the next month's payment, or to escrow, unless you mark it "principal only." Misapplied, it saves nothing.
• No prepayment penalty is assumed. Standard US conforming loans carry none, so every extra dollar shortens the loan; a few non-conforming loans do, which would blunt the saving.
• Opportunity cost is ignored. Paying the mortgage down earns a guaranteed return equal to the rate, but a higher expected return elsewhere — say a diversified investment — could beat it over the same horizon. That is a real trade-off, not a settled answer; the investment return calculator lets you compare. This is arithmetic on the stated inputs, not advice.

Questions people ask

How much do extra payments actually save?

More than most people expect, because every extra dollar skips all the future interest it would otherwise have carried. On the worked example — $320,000 at 6.5% over 30 years — adding $200 a month pays the loan off 6 yrs 7 mo early and saves $105,429 in interest, cutting the total interest bill from $408,142 to $302,714. The effect is largest early in the loan, when each dollar has the longest interest tail ahead of it.

Should I pay extra on the mortgage or invest the money instead?

Honestly, it depends, and neither answer is automatic. Paying down a fixed-rate mortgage earns a guaranteed, risk-free, tax-free return equal to the mortgage rate — pay off a 6.5% loan and you have locked in 6.5%. Investing offers a higher expected return over long horizons but with real risk and no guarantee, and the gain is often taxable. The rational comparison is the mortgage rate against your after-tax expected return on a comparable-risk basis, adjusted for how much you value certainty. Many people also weigh the emotional payoff of owning the home outright. There is no single right answer — only the one that fits your rate, your horizon and your tolerance for risk.

Are biweekly payments the same as paying extra?

Close, and they work for the same reason. Paying half your monthly payment every two weeks means 26 half-payments a year, which is 13 full payments instead of 12 — one extra payment a year, spread out. That single extra payment shortens a 30-year loan by roughly four to six years, depending on the rate. You can reproduce the effect exactly by adding one-twelfth of your payment to each monthly payment, with no biweekly plan and no fees — just confirm the servicer applies it to principal.

Do extra payments lower my monthly payment?

No — this is the most common misunderstanding. Extra principal shortens the term, not the payment: you still owe the same contract payment each month, you just make fewer of them. The one way to lower the monthly payment on the same loan is a recast, where the servicer re-amortizes the reduced balance over the remaining term for a small fee. A recast lowers the payment but keeps the payoff date; extra payments keep the payment but pull the payoff date forward. They are different tools.

Should I pay off the mortgage before I retire?

Many people want to, and entering retirement without a mortgage payment removes a large fixed cost and a source of stress. But it is not free: money used to retire a low-rate mortgage is money not invested or kept liquid, and draining savings to pay off the house can leave you house-rich and cash-poor. The stronger cases for paying it off are a high rate, a paid-off house you plan to stay in, and enough other assets that the cash is not missed. The weaker cases are a low locked-in rate and thin liquidity. It is a cash-flow and risk decision, not just an interest calculation — worth discussing with an adviser for your own numbers.