Mortgage Payoff Calculator: Extra Payments

Small extras, big savings

Early in a mortgage, most of each payment is interest. Any extra amount goes straight to principal, which lowers every later month's interest and shortens the loan. On a $320,000 balance at 6.5% with 28 years left, an extra $200 a month removes almost six years and saves roughly $90,000 in interest.

A popular variation is paying half the monthly payment every two weeks. That adds up to 26 half-payments, or 13 full payments a year, which is the same as one extra payment annually. You can model it by entering one month's payment in the yearly box.

Pay down or invest?

Paying extra is a guaranteed, risk-free return equal to your mortgage rate. Investing may earn more on average but with ups and downs. With a 3% mortgage, many people prefer to invest; at 6.5% or more, extra payments become more attractive. Make sure you have an emergency fund and are capturing any retirement match first, since home equity is hard to access in a pinch.

A lump sum or a 13th payment

One-off payments work too, and the earlier they come, the more they save. A single $10,000 payment at the start of a $320,000 mortgage at 6.5% with 28 years left takes about 27 months off the loan and saves around $46,800 in interest. A $5,000 payment saves about 14 months and $24,500.

Making one extra full payment a year, about $2,070 here, cuts five years off the loan and saves roughly $77,000. Check that your lender applies extra money to principal and that the loan has no prepayment penalty.