How to use the mortgage payoff calculator
Choose I know the remaining term if you know the original loan amount, term and how much time is left — the mortgage payoff calculator works out today's balance. Otherwise choose I don't know it and enter the unpaid principal balance and monthly payment from your latest mortgage statement.
Then pick a repayment option: pay the whole balance at once, add extra payments (monthly, yearly or one-time), switch to biweekly payments, or keep the normal schedule. The results compare the original plan with your payoff plan: monthly pay, total payments, total interest, the payoff date and how much time and interest you save. The graph and table show both plans year by year. To plan a new home loan instead, use the mortgage calculator.
How the payoff is calculated
Every month, interest is charged on the remaining balance: interest = balance × r, where r is the annual rate divided by 12. The rest of the payment, and the whole of any extra payment, reduces the balance. With a fixed monthly payment M, the number of payments left is:
n = −ln(1 − r × B / M) / ln(1 + r)
where B is the current balance. Rounded up, n is the number of months until the mortgage is paid off, and the interest saved is the original total interest minus the new total interest.
Example: a new $300,000 mortgage at 6.5% for 30 years has a payment of $1,896.20. Paying $200 extra makes M = $2,096.20 with r = 0.065 / 12 = 0.0054167, so n = −ln(1 − 0.0054167 × 300,000 / 2,096) / ln(1.0054167) ≈ 276.3. That is 277 payments, or 23 years 1 month, instead of 360 — 6 years 11 months sooner.
Ways to pay off a mortgage early
- Extra monthly payments. A fixed amount added to every payment goes straight to principal.
- Yearly lump sums. A bonus or tax refund paid once a year.
- One-time payment. For example after selling another property or receiving an inheritance.
- Biweekly payments. Paying half the monthly amount every two weeks adds up to 26 half payments, or 13 full payments, a year — one extra payment every year.
- Refinancing to a shorter term, such as from 30 to 15 years, usually at a lower rate. The refinance calculator shows the new payment and when the closing costs pay off.
How much extra payments save
A $300,000, 30-year mortgage at 6.5% has a payment of about $1,896. The table shows what a fixed extra amount each month, starting with the first payment, does to the same loan.
| Extra a month | Paid off in | Sooner by | Interest saved |
|---|---|---|---|
| $100 | 26 years | 4 years | $60,995 |
| $200 | 23 years 1 month | 6 years 11 months | $103,449 |
| $500 | 17 years 6 months | 12 years 6 months | $179,759 |
| $1,000 | 12 years 9 months | 17 years 3 months | $241,162 |
Starting later in the loan still helps, but saves less, because more of the interest has already been paid. To see how every payment splits between principal and interest, open the amortization calculator.
How to make extra payments count
- Mark them as principal. Ask your lender, or tick the option in its online account, to apply the extra money to principal. Otherwise it may be held as an early payment of next month's bill.
- Check for a prepayment penalty. Most mortgages today have none, and where one is allowed, federal rules limit it to the first three years of the loan. Your closing documents say whether yours has one.
- Keep the regular payment the same. Paying extra does not let you skip a payment; it shortens the loan instead.
Mortgage recast: a lower payment instead of a shorter loan
Extra payments normally keep your monthly payment the same and end the loan sooner. If you would rather lower the payment, ask your lender about a recast: after a large lump sum, the lender recalculates the payment over the remaining term. Lenders usually require a minimum lump sum and charge a fee, often a few hundred dollars, which is far cheaper than refinancing.
Paying off your mortgage vs. investing
Every extra dollar paid on the mortgage earns a guaranteed return equal to your interest rate, with no risk. Investing the same money may earn more over the long run, but the return is not guaranteed and can be negative in some years. A high mortgage rate makes paying it down more attractive; a low rate makes investing more attractive. Compare the two with the investment calculator.
Should you pay off your mortgage early?
Owning your home outright lowers your monthly expenses, but money paid into the house is hard to get back quickly. Before paying ahead, consider:
- keeping an emergency fund of several months of expenses — the savings calculator shows how fast it grows;
- paying off higher-interest debt such as credit cards first — see the debt payoff calculator;
- retirement contributions, especially if your employer matches them — the 401(k) calculator shows the value of the match;
- whether your loan has a prepayment penalty.