How to Calculate Mortgage Payoff
What is Mortgage Payoff?
A mortgage payoff calculator shows how extra monthly payments or lump sums reduce your mortgage term and total interest paid.
Formula
Months saved = current_remaining_term − new_payoff_months based on extra principal payment
- P
- Current principal ($)
- r
- Interest rate (%)
- Δ
- Extra payment amount ($)
Step-by-Step Guide
- 1Extra monthly payment reduces principal faster, cutting interest each month
- 2Years saved = original term − new term with overpayments
- 3Interest saved = (original total) − (new total with overpayments)
- 4Lump sum equivalent: one large payment = months × extra payment
Worked Examples
Input
£200k, 4.5%, 25yr, extra £200/month
Result
Payoff in ~20yr instead of 25yr; Save ~£20,000 in interest
Frequently Asked Questions
How much interest do I save with extra payments?
Depends on loan amount, rate, and monthly extra. $100 extra/month on $300k @ 7% saves ~$60-80k.
Should I pay extra principal or invest?
If mortgage rate > investment returns, pay extra. If <, invest. Typically mortgage rates higher currently.
Does one extra payment per year help?
Yes. One annual extra payment = 1 month principal reduction. Saves ~5-7 years on 30-year mortgage.
Ready to calculate? Try the free Mortgage Payoff Calculator
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