Mortgage Calculator with Extra Payments

Why a small extra payment does so much

On the default figures here — $320,000 at 6.5% over 30 years — adding $200 a month saves $105,429 in interest and finishes the loan 79 months early, in a little over 23 years instead of 30. That is more than six and a half years of payments removed for an extra $200 a month.

The reason the effect is so large is that every extra dollar goes straight at the principal in the month it is paid, and every dollar of principal you remove stops accruing interest for the entire rest of the loan. Early in a 30-year mortgage almost all of your normal payment is interest, so the scheduled principal reduction is tiny. An extra $200 roughly doubles the principal reduction in the first year, and that compounding advantage carries all the way through.

It is worth being clear about what the comparison is: $105,429 is the difference against paying the standard schedule for the full 30 years, which costs $408,142 in interest. Paying the extra brings total interest down to about $302,714.

The returns diminish sharply

This is the part that surprises people, and it is visible in the numbers if you vary the extra amount. Compare what each increment buys on this loan:

What that works out to per dollar

Measured per extra dollar, the first $100 of monthly prepayment is worth roughly $617 of saved interest, while the money that takes you from $500 to $1,000 is worth about $132 per dollar. The reason is straightforward: money paid early kills decades of interest, and money paid later kills only a few years of it. Once you are prepaying aggressively, you have already removed most of the interest there was to remove.

This does not mean large prepayments are bad — it means the last dollar is worth much less than the first, so the decision at the margin is a genuine comparison against investing that money instead.

• First $100 a month — saves $61,698 and cuts 46 months.
• Going from $100 to $200 — the second $100 saves a further $43,731 and cuts another 33 months.
• Going from $200 to $300 — the third $100 saves $33,017 and cuts 27 months.
• Going from $500 to $1,000 — the last $500 saves $65,848, or about $13,170 per $100.

Late in the loan, extra payments barely matter

The same logic explains a case that looks paradoxical. Take the same $320,000 balance but a 15-year loan instead of 30. Add the same $200 a month. Now it saves $21,748 and cuts 19 months — barely a quarter of the benefit, for exactly the same monthly effort.

Nothing is wrong with the shorter loan; it is simply that on a 15-year schedule the balance is already being retired quickly, so there is far less interest left to cancel. By the final years of any mortgage, extra payments are mostly just returning your own money earlier — the interest component of your payment has already shrunk to almost nothing.

So the honest framing is: prepayment is powerful early and weak late. If you are ten or fifteen years into a 30-year loan, an extra $200 a month will still shorten the loan, but it will not produce the six-figure saving it would have produced in year one.

What that means in practice

• Early in the loan, prepaying competes very well with other uses of the money.
• Late in the loan, the same money is usually better invested or kept liquid.
• If you are deciding between two loan terms, the choice matters far more than any prepayment plan you layer on top of it.

Paying extra versus investing the money

Paying down a mortgage at 6.5% earns you a guaranteed 6.5% — not on a rate you hope to earn, but on every dollar, with no volatility and no tax on the saving. The comparison is against what you could earn elsewhere after tax and after risk.

If you can reliably earn more than 6.5% after tax with risk you are comfortable holding, investing comes out ahead on the arithmetic. If your alternative is a savings account paying well under that, prepaying wins by a wide margin. Most situations sit somewhere between, and the deciding factor is usually not the expected return but whether you value certainty over upside.

There is a middle case worth naming: retirement contributions with an employer match beat both. A 50% or 100% match is an immediate return no mortgage rate competes with, and it should come before voluntary prepayment.

Before you send the money

Two practical things determine whether prepayment actually works as described, and both are easy to get wrong.

Make sure it is applied to principal

On many US mortgages, sending extra money does not automatically reduce your principal. Some servicers treat an overpayment as an advance on next month's payment, which shortens nothing and saves no interest at all. You usually have to choose an option in the payment portal, mark "apply to principal" on a check, or call and ask. Confirm it on the statement — the principal balance should drop by the extra amount, not just shift the next due date.

Build the emergency fund first

Money paid into a house is gone from your bank account and can only be retrieved by selling, refinancing, or taking out a HELOC — none of which are fast or certain. Paying an extra $200 a month for two years puts $4,800 into equity that you cannot access in an emergency, to save interest you would have paid over decades.

The usual ordering is: employer-matched retirement contributions first, then a cash buffer of three to six months of expenses, then voluntary prepayment. Prepaying before you have a buffer converts a manageable bad month into a genuine crisis.

What prepayment does not do

Paying extra shortens the loan. It does not lower your contractual payment — that number stays the same until the loan ends. If what you actually need is a smaller monthly obligation rather than a shorter loan, prepayment is the wrong tool.

• A refinance replaces the loan and resets the payment, at the cost of closing fees.
• A loan recast — where allowed — re-amortises the remaining balance after a lump-sum payment, lowering the payment without a new loan. Not all loans permit it.
• Extra payments do not reduce taxes, insurance or PMI, which are unaffected by how fast you repay principal.
• Removing PMI early is a separate calculation: reaching 20% equity cancels the premium, which can be a larger monthly saving than the interest effect.