Extra Payment / Early Payoff Calculator

Why extra principal works

Interest is charged on the balance you still owe. Every dollar of extra principal permanently removes that dollar from every future interest calculation, so the saving compounds for the rest of the loan.

Early payments matter most

In the first years most of a payment is interest and little reaches principal. Extra money applied then has the longest time to compound, which is why the same $200 saves far more in year two than in year twenty.

Make sure it is applied to principal

Servicers sometimes hold extra money as a prepayment of next month's bill instead of reducing the balance. Use the additional principal field, or note it on the payment, so the balance drops right away.

Recasting versus shortening

After a large lump sum some lenders will recast the loan, recalculating the payment on the lower balance while keeping the original payoff date. That lowers the monthly payment instead of shortening the term.

What usually comes first

A mortgage is often the cheapest debt a household carries. Higher-rate credit card or auto debt, an emergency fund, and a matched retirement contribution generally take priority over extra principal.

What different extra amounts actually save

The table below uses a $315,000 loan at 6.77% over 30 years, a principal and interest payment of about $2,047. Every extra dollar goes straight to principal from month one.

Notice the shape of it. Doubling the extra payment from $100 to $200 does not double the saving, it nearly doubles it, because you are removing interest that would have compounded for decades. Going to $500 cuts more than twelve years off the loan.

Biweekly payments are the same idea

Paying half your mortgage every two weeks produces 26 half-payments a year, which is 13 full payments instead of 12. That extra payment, spread across the year, behaves almost exactly like adding one-twelfth of your payment each month. On the loan above that is about $171 a month and roughly four and a half years off the term. You do not need a paid biweekly service to get this. Divide your payment by twelve and add it to principal yourself.

Check the rate before you commit

Extra principal earns you a guaranteed return equal to your mortgage rate, tax considerations aside. At 6.77% that is a strong, riskless return and hard to beat with cash sitting in a savings account. At 3%, the same dollars often do more in a retirement account. Compare your rate against what the money would earn elsewhere before locking it into the house.

Frequently asked questions

Do extra mortgage payments save money?

Yes. Extra principal reduces the balance and the future interest on it, and it shortens the loan.

Is it better to pay extra or invest?

It depends on your rate, taxes, and goals. Paying extra is a guaranteed return equal to your rate.

Is there a penalty for paying extra?

Most current mortgages have no prepayment penalty, but check your note. Penalties are more common on some non-qualified and investor loans.

Does paying extra lower my monthly payment?

No. It shortens the term instead. Lowering the payment requires a recast or a refinance.

Should I pay biweekly instead?

Biweekly means half a payment every two weeks, which adds one extra full payment a year. The effect is close to adding one twelfth to each monthly payment.