Mortgage Payoff Calculator
| Original | With payoff | |
|---|---|---|
| Monthly payment | $1,896.20 | $1,996.20 |
| Total payments | $568,861.34 | $506,647.73 |
| Total interest | $279,723.34 | $207,509.73 |
| Interest savings | $0.00 | $72,213.61 |
| Payoff term | 25 years | 17 yrs 1 mo |
Principal and Interest of a Mortgage
A mortgage is a loan secured by a property, typically a home. When you make a mortgage payment, a portion of the payment goes toward reducing the principal balance of the loan, and another portion goes toward paying the interest charged by the lender. Over time, as the principal balance decreases, the amount of interest charged also decreases, allowing a larger portion of the payment to go toward the principal.
Extra Payments
Making extra payments toward your mortgage is one of the most effective ways to pay off your loan early and save on interest. Even a small increase in your monthly payment can have a significant impact over the life of the loan. For example, adding $100 to your monthly payment on a $300,000 mortgage at 6.5% interest can save you tens of thousands of dollars in interest and shorten your payoff term by several years.
Our calculator allows you to input extra payments in three different ways:
- Monthly: An extra amount added to every monthly payment.
- Yearly: An extra amount paid once a year in a specific month.
- One-Time: A single extra payment made in a specific month and year.
Biweekly Payments
Another popular strategy for paying off a mortgage early is making biweekly payments. Instead of making 12 monthly payments a year, you make a half-payment every two weeks. This results in 26 half-payments, which is equivalent to 13 full monthly payments a year. This extra payment can shorten a 30-year mortgage by several years.
Refinancing to a Shorter Term
If interest rates have dropped since you took out your mortgage, you may want to consider refinancing to a shorter term, such as a 15-year mortgage. While your monthly payments may increase, you will pay significantly less interest over the life of the loan and build equity in your home much faster.
Prepayment Penalties
Before making extra payments or paying off your mortgage early, check with your lender to see if your loan has a prepayment penalty. Some lenders charge a fee if you pay off all or part of your mortgage early, typically within the first few years of the loan. Prepayment penalties are less common on modern mortgages but are still important to verify.
Opportunity Costs
While paying off your mortgage early can save you money on interest, it is important to consider the opportunity cost. If you have other high-interest debt, such as credit card debt, it is generally better to pay that off first. Additionally, you may want to consider whether you could earn a higher return by investing the extra money rather than using it to pay down a low-interest mortgage.