Extra payments will reduce your mortgage loan balance faster, so you’ll pay off the loan faster and will end up paying less interest over the loan term. This extra mortgage payment calculator can help you understand how paying extra now can help you later.
Making extra payments can drastically reduce your loan term and save you a tremendous amount on interest charges. Use our extra mortgage payment calculator to see how fast you can pay off your mortgage with additional monthly payments.
Extra mortgage payment calculator
Our mortgage extra payment calculator shows how extra mortgage payments affect your loan payoff date — i.e., the date you make your final payment and have full equity in your home.
The mortgage payment calculator also tells you how much interest you’ll save over the loan's lifetime. Since interest is based on the loan balance, reducing the balance with extra payments shaves off interest and alters the loan’s amortization schedule.
Read further for examples, payoff strategies, and a full breakdown of the utility of extra payments.
Disclaimer: The information provided in this article is for informational purposes only. It is not intended as legal, financial, investment, or tax advice, and should not be relied upon as such. Consult a licensed financial advisor or tax professional regarding your personal financial situation before making any decisions.
How to use this calculator (step-by-step)
To use our mortgage calculator with extra payments, just enter the details of your loan and the extra payment amount/frequency. Below is a step-by-step breakdown:
- Enter your original loan amount.
- Enter your current balance.
- Enter the loan term (e.g., 30-year, 15-year, etc.).
- Enter the remaining number of years.
- Enter the interest rate.
- Enter the frequency of extra payment (e.g., monthly, annually, lump sum).
Click calculate, and the calculator tool will output your new payoff date, total interest savings, and amortization impact.
Note: Make sure that you check “principal-only” so that the calculator applies the extra payments to the loan principal.
How extra mortgage payments work
When you start paying a mortgage, the majority of your initial payment goes to paying down the interest. This interest is based on the remaining principal balance of the loan.
Extra mortgage payments are applied to the loan principal, and interest is then recalculated on the new lower balance. The result is that you pay less interest and shorten your loan payoff timeline.
There are a couple of different ways to make extra mortgage payments:
- Adding extra to your monthly mortgage payment each month.
- Making one or multiple extra monthly payments each year.
- Making biweekly payments instead of monthly payments.
Because of how interest is calculated, it's generally better to make extra payments early in the mortgage’s lifespan. Reducing the loan principal early helps you avoid compounding interest, which saves more in the long term than making extra payments later would.
Example payoff scenarios
Let’s consider some specific payoff scenarios and see how extra payments would impact them.
$300k loan, 6.5% rate - $100 extra per month
Contributing $100 extra per month on a $300,000 loan at 6.5% can save you more than $60,000 on interest and shave four years off your loan payoff date.
$400k loan, 7% rate - $200 extra per month
An extra $200 a month on a $400,000 loan at 7% will net more than $126,000 in interest savings and reduce the loan term by nearly six years.
One extra full payment per year
Making a single extra payment each year can lower your payoff date by four to six years and save you tens of thousands in interest, depending on the loan specifics.
$10,000 lump sum in year 5
Making a single lump sum extra contribution in the fifth year of the mortgage will generate more interest savings than contributing in year 10 or 15.
Extra payment vs. refinancing: Which saves you more?
Extra payments and refinancing are two ways of saving on your mortgage, but which is most effective?
The answer is: It depends. Securing a lower rate can yield more interest savings than making small extra monthly payments.
However, there are hidden costs of refinancing — you’ll still need to pay closing costs, typically between 2% and 6% of the loan amount. Additional mortgage payments could be more beneficial if the interest drop is not significant enough:
- If rates are high: Extra payments are better.
- If rates are low: Refinancing is better.
Pros and cons of making extra mortgage payments
Pros
- Cuts loan term
- Interest savings
- Better cash flow in retirement
- Lower long-term risk
- Build equity faster
Cons
- Lower liquidity
- Opportunity cost
- Prepayment penalties
- Moving discouraged
Like any financial decision, making extra mortgage payments has advantages and disadvantages.
Making extra payments shortens your loan term and cuts time off your payoff date. Interest calculations also factor in the reduced loan balance, so you’ll pay less interest over the loan term. If you’ve made extra payments early in your mortgage, it can free up funds for retirement later that you’d otherwise spend on housing.
You can have more long-term security by paying off and owning your home outright earlier. Lowering the loan balance faster also accelerates your equity accrual, which can eliminate private mortgage insurance (PMI) requirements.
On the other hand, making extra payments could strain your budget. You’ll have less liquidity, which can make monthly budgeting more difficult. The money you’ll spend on extra payments may be better spent on other things, like a larger down payment or investments.
Some lenders will charge a prepayment penalty if you pay off your mortgage early. And making extra payments won’t be as beneficial if you plan to sell and move in the near future.
When extra payments make sense — and when they don’t
Extra payments may be more beneficial in some situations than others.
When it makes sense
If this sounds like you, it might make sense to pay off your mortgage early.
- High income stability: You have sufficient funds to make extra mortgage payments without straining your budget.
- Emergency funds in place: You have enough cash reserves to sustain you for at least 8 to 12 months.
- High interest rates: Making extra payments can substantially reduce the impact of high interest rates on total interest paid.
- Close to retirement: If you are nearing retirement, extra payments now could free up retirement income later.
- Stay in home long term: You’ll benefit more from accelerated equity accrual if you plan to stay in your home long-term.
When it doesn’t
If this is your situation, making extra payments might not help you as much.
- You have high-interest debt: You generally should pay down any high-interest debt (e.g., credit card debt) before contributing extra to mortgage payments.
- Low retirement savings: The money on extra payments may be better used by investing for retirement.
- Moving soon: The accelerated equity accrual isn’t as useful if you are planning to move in the near term.
- Low cash reserves: After paying off debt, you should focus on topping off your cash reserves before making extra mortgage payments.
Paying off your mortgage early vs. investing
One important factor to consider is the opportunity cost of making extra payments. Instead of contributing an extra $200 to monthly mortgage payments, you could invest that amount into a pre-tax or post-tax account.
The average stock market return over the long run is about 6–8%, so whether it's worth it to pay extra on a mortgage depends on your long-term horizons and investment goals.
From a strictly “math” perspective, investing for retirement might make more sense. If your mortgage rate is low, investing may be a better use of your capital.
However, owning your house outright provides long-term security, which may better suit your risk preferences — especially if you plan to stay in the house for an extended period. You can discuss your finances with a professional to figure out a plan that works best for you.
Common extra payment strategies (with examples)
Let’s look at some specific extra mortgage payment strategies to see their mechanics and benefits.
Monthly extra payments
Making monthly extra payments means paying more than just the minimum monthly payment. For instance, if your monthly payment is $2,700, you could contribute an extra $200 and pay $2,900. This method reduces the loan principal faster than others.
Biweekly payments
You could also switch to a biweekly payment schedule instead of a monthly one. Instead of making 12 payments per year, you make 26 payments per year — once every two weeks. You are effectively making an extra monthly mortgage payment spread out through the year.
Extra payment per year
A simple option is to make an additional monthly payment each year. The best option is to make this extra payment near the beginning of the year so you can reduce the loan principal earlier in the loan term.
Lump sum
If you have a one-time windfall, such as an inheritance or a wedding gift, you can apply a one-time payment to your loan balance. The sooner during the loan’s lifetime you make the payment, the greater the impact it will have on interest savings.
Rounding up
A final option is to round up your mortgage to the nearest $10, $100, or $1,000 amount. For instance, if your monthly payment is a rough number, such as $2,867, you could round it up to a more convenient amount, like $2,900 or $3,000, to make budgeting easier.
You can play with our mortgage calculator with extra payments to see how different payment strategies impact your payoff date and amortization schedule.
How to ensure your extra payments go to principal
You need to ensure your extra payments are applied to the loan principal to maximize the benefit. Otherwise, you are just paying down the interest and not slowing its growth.
You can specify where extra payments are directed by communicating with your mortgage provider via email or phone.
If you pay your mortgage online, there may be a “principal-only” section you can select. You can also add “for principal only” on memo lines if you pay with paper checks.
Review your regular mortgage statements to check that your payments are applied correctly. If not, contact your mortgage provider and request that they resolve the issue.
Prepayment penalties: What to check
Some lenders will charge a prepayment penalty if you pay off the loan early, usually between 1% and 2% of the remaining loan balance. This penalty is to compensate lenders for the interest they lost due to early repayment.
Prepayment penalties are relatively rare in most conventional and qualified mortgages, but they may be relevant in loans for investment properties.
You can review your loan agreement online for details about applicable prepayment penalties before committing to extra payments.
The bottom line
Making extra mortgage payments can help you save significant amounts of money on your loan. But it’s not the only way to save money.
By listing with Clever, you can find the top agents and save on the lowest commissions. You can also talk to an expert about refinancing and other options to pay off a mortgage earlier.
Both are free and 100% no obligation, so there is no risk to trying it out!
FAQ
How many years will one extra mortgage payment take off?
One extra mortgage payment per year can take off anywhere between five and six years off a traditional 30-year mortgage.
What happens if I pay two extra mortgage payments a year?
Two extra payments per year could reduce your 30-year mortgage timeline by as much as ten years.
How can I pay off a 30-year mortgage in 15 years?
You can pay off a 30-year mortgage by making extra premium payments, making biweekly payments, or refinancing your loan.
Is it better to make extra payments monthly or annually?
It’s generally better to make extra payments monthly so you reduce the remaining loan balance faster and pay less interest.
What is the fastest way to pay off your mortgage?
The fastest way to pay off a mortgage is to reduce your principal balance by making extra payments.
Do extra payments reduce PMI faster?
Extra payments can reduce PMI faster by reducing your loan balance.
Do extra payments hurt taxes?
Extra payments don’t hurt your taxes, but they will reduce the mortgage interest deduction you can take.