Loan Payoff Calculator with Extra Payments

The formula

The regular payment is P = B × i ÷ (1 − (1 + i)^−n), where B is the balance, i the monthly rate (annual rate ÷ 12) and n the number of months. With an extra amount, each month's interest is charged on the remaining balance, the whole payment is applied, and the balance falls faster. The calculator repeats this month by month until the balance reaches zero, adding up the interest.

Worked example

A 200,000 loan at 5% over 30 years has a payment of 1,073.64 and costs 186,511.57 in interest. Adding 200 a month (a payment of 1,273.64) clears the loan in 21 years 4 months instead of 30 years, saving 8 years 8 months and 61,160.51 in interest, for total interest of 125,351.06.

Limitations

It assumes a fixed rate and level payments. Variable-rate loans, prepayment penalties, fees and lenders that do not apply extra payments to principal will change the result.

How the size of the extra payment matters

On the 200,000 loan at 5% over 30 years, an extra 100 a month clears the loan in 24 years 10 months and saves 37,069.03 in interest. An extra 500 a month clears it in 15 years 2 months and saves 101,121.26. The saving grows with the extra amount, but not in a straight line.

Why the early months matter most

In the first month, interest on 200,000 at 5% is 833.33, so most of the 1,073.64 payment goes to interest rather than reducing the balance. Extra money applied early cuts the balance that every later month's interest is charged on, which is why starting sooner saves more than the same extra amount paid late.

Before you pay extra

• Ask the lender whether extra payments are allowed and whether any prepayment fee applies.
• Make sure the extra amount is applied to the principal, not held against the next regular payment.
• Compare the loan's rate with other debts or savings you could use the money for.

Payoff with extra payments

A 200,000 balance at 6% over 30 years has a regular payment of 1,199.10 and costs 231,676.38 in total interest. Adding 200 a month raises the payment to 1,399.10, clears the loan in 21 years, which is 9 years sooner, and cuts the interest to 151,875.87, a saving of 79,800.51.

At a rate of 0%, the balance is simply divided over the months: 200,000 over 10 years is 1,666.67 a month with no interest. The calculation assumes a fixed rate and that every extra payment goes entirely toward the balance, so check your lender's prepayment rules and any fees.