Extra Mortgage Payment Calculator: Interest Saved

Why a small extra payment does so much

In the early years of a 30-year mortgage, most of each payment is interest. On a $320,000 loan at 6.5%, the first payment of $2,022.62 includes $1,733.33 of interest and only $289.29 of principal. Any extra dollar you send goes 100% to principal, and every dollar of principal you retire stops generating interest for the rest of the loan. That's why $200 a month can erase years of payments.

The math behind it

The calculator runs the loan month by month. Each month: interest = balance × annual rate ÷ 12. Then the regular payment plus your extra is subtracted from balance + interest. It repeats until the balance hits zero, once with no extras and once with yours, and compares the two. The regular payment itself comes from the standard formula M = P × r(1 + r)^n ÷ ((1 + r)^n − 1) and doesn't change; extras only shorten the loan.

Worked examples on a $320,000, 30-year loan at 6.5%

No extra payments: 360 months, $408,142 in total interest.

$200 extra every month: paid off in 281 months, 6 years and 7 months early, with $302,714 in interest. That's $105,429 saved for putting in about $56,200 extra.

One extra payment a year (the biweekly effect, about $168.55 a month spread out): 290 months, saving $93,073 and nearly 6 years.

A single $10,000 lump sum in month one: 329 months, saving $53,943. Timing matters: the same $10,000 sent in year 20 saves a fraction of that, because there's far less future interest left to kill.

$5,000 once a year, say from a bonus or tax refund: 233 months, saving $162,648 and more than 10 years.

Biweekly payments: do it yourself

Paying half your payment every two weeks gives you 26 half-payments, or 13 full payments a year. The savings come entirely from that 13th payment, not from any magic in the timing. Some third-party biweekly programs charge setup or per-payment fees for this. Skip them. Add one-twelfth of your payment to each monthly payment and you get nearly the same result for free. Tick the biweekly box in the calculator to see it.

Should you prepay or invest?

Prepaying a 6.5% mortgage is a guaranteed, risk-free 6.5% return on that money. A broad stock index fund has historically returned more over long periods, but with real risk and no guarantee. A reasonable order of operations: build an emergency fund first, capture any 401(k) employer match (that's an instant 50% to 100% return), and pay off credit cards and other debt above your mortgage rate. After that, prepaying is a solid choice if your rate is above roughly 5% or if being debt-free by a certain age matters to you.

If your rate is 3%, the case for prepaying is weak; a high-yield savings account or Treasury bills may pay more than that with no risk. If you itemize and deduct mortgage interest, your after-tax rate is a bit lower than the note rate.

Mistakes to avoid

Not labeling the payment. Tell your servicer, in writing or in the online payment form, that the extra goes to principal. Otherwise some servicers hold it as a prepayment of next month's bill, which saves you nothing.

Draining your cash to do it. Money sent to principal is locked in your house. If you lose your job, the bank won't give it back; you'd need a HELOC or a sale to reach it. Keep your emergency fund intact.

Expecting a lower payment. Extra payments shorten the loan; your required payment stays the same. If you want a lower payment after a big lump sum, ask your servicer about recasting, which re-amortizes the loan for a small fee, often a few hundred dollars.

Missing a prepayment penalty. Most US mortgages made since the 2014 Qualified Mortgage rules have none, and where allowed they're limited to the first three years. Check your note to be sure.