How the Mortgage Payoff Calculator Works
Most mortgages last 15 or 30 years, but you do not have to keep them that long. Every extra dollar you pay goes straight against what you owe, so less interest is charged from then on. The Mortgage Payoff Calculator shows when your mortgage will be paid off, and how much sooner it could be if you pay extra.
What you enter
- Current mortgage balance: what you owe today, from your latest statement. This is not the original loan amount.
- Interest rate: the yearly rate on your mortgage.
- Your payment or years left: either your monthly payment for principal and interest, or the years left on the loan. If you enter the years left, the calculator works out the payment for you.
- Extra each month: an amount added to every payment.
- One-time extra payment: a single lump sum now, such as a bonus or a tax refund.
How it works, month by month
Each month, interest is charged on the balance you still owe. The interest is the yearly rate divided by 12, times the balance. Your payment covers that interest first, and whatever is left reduces the loan:
interest this month = balance x (yearly rate / 12) new balance = balance + interest - payment
Early in the loan, most of your payment is interest. Later, most of it reduces the loan. An extra payment skips that whole process. It cuts the balance now, so the next month's interest is lower, and more of your regular payment goes to the loan too. The calculator repeats this until the balance reaches zero. The last payment is smaller if less than a full payment is left.
If you know only the years left, the payment comes from the standard loan formula, where P is the balance, r is the monthly rate and n is the number of months:
payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
If your payment is not larger than the first month's interest, the loan would never shrink. The calculator warns you and asks for a larger payment.
A worked example
You owe $280,000 at 6.5%, and your payment is $1,770 a month. With the normal payment, the loan lasts 30 years and you pay $356,968 in interest. Now you add $200 a month:
| Result | Normal payment | With $200 extra |
|---|---|---|
| Paid off in | 30 years | 22 years 8 months |
| Interest paid | $356,968 | $255,769 |
| Time saved | 7 years 4 months | |
| Interest saved | $101,200 |
An extra $200 a month, on a payment of $1,770, saves more than $100,000 and more than 7 years.
What different extra amounts do
The same loan with different extra payments each month:
| Extra a month | Paid off in | Interest saved |
|---|---|---|
| $100 | 25 years 9 months | $60,159 |
| $250 | 21 years 6 months | $117,351 |
| $500 | 17 years 1 month | $173,463 |
| $1,000 | 12 years 3 months | $230,321 |
Chart: how long the mortgage lasts
The same loan. The shorter the bar, the sooner you are mortgage-free:
Normal payment ████████████████████████████████████████ 30 years + $100 a month ██████████████████████████████████ 25.8 years + $250 a month █████████████████████████████ 21.5 years + $500 a month ███████████████████████ 17.1 years + $1,000 ████████████████ 12.3 years
A one-time payment
A lump sum today helps a lot, because it starts saving interest immediately. For example, a single extra $20,000 on the loan above, with no monthly extra, shortens it by 5 years and 6 months, to 24 years 6 months, and saves $96,651 in interest.
Before you pay extra
- Check for a prepayment penalty. Most mortgages do not have one, but a few do.
- Tell your lender the extra is for principal. Otherwise it may be held as an early payment for next month.
- Compare with other uses of the money. If you have high-interest debt, or no emergency savings, those may come first. If you could earn more by investing than your mortgage rate, that is a choice to weigh.
- Interest tax deductions may change the real cost of the loan, depending on where you live.
What this calculator does not include
- Property tax, homeowners insurance and mortgage insurance. These are usually part of your monthly bill, but not part of the loan.
- Loans with a variable rate, where the payment can change.
- Small rounding differences. Your lender's figures are calculated to the cent each month.
This tool gives an estimate for general information only. It is not financial advice. Your lender can confirm your exact payoff amount.