How to use the Loan Payoff Calculator (Extra Payments)
- Enter your current loan balance and the yearly interest rate.
- Enter the number of years remaining on the loan.
- Enter the extra amount you could add to the payment every month.
- Read the new payoff time, the time saved and the interest saved.
Formula used
The regular payment comes from the amortisation formula. The calculator then repeats month by month: interest = balance × monthly rate, and the payment plus extra reduces the balance until it reaches zero.
Worked example
Here is the Loan Payoff Calculator (Extra Payments) worked through with the example values shown above, so you can check each step by hand.
| Inputs | |
|---|---|
| Current loan balance | $200,000 |
| Interest rate (per year) | 6.5 % |
| Years remaining | 25 years |
| Extra payment each month | $200 |
| Result | |
| New payoff time | 18 years, 7 months |
| Interest saved | $60,783 |
| Time saved | 6 years, 5 months |
| Regular monthly payment | $1,350.41 |
| Payment with the extra | $1,550.41 |
Effect of different extra payments
The default loan with different extra monthly amounts.
| Extra payment each month | New payoff time | Interest saved |
|---|---|---|
| $0 | 25 years | $0 |
| $100 | 21 years, 3 months | $36,208 |
| $200 | 18 years, 7 months | $60,783 |
| $500 | 13 years, 8 months | $103,494 |
| $1,000 | 9 years, 7 months | $136,287 |
What extra payments do
Interest is charged on the balance. When you pay extra, the balance falls faster, so every later month charges less interest and more of your regular payment goes to principal. For a $200,000 balance at 6.5% with 25 years left, the regular payment is $1,350.41. Adding $200 a month brings the payoff to 18 years, 7 months, which is 6 years, 5 months earlier, and saves $60,783 in interest.
The saving is large because the extra money works from the first month, when the balance and the interest are highest.
How much does each amount save?
On the same loan, $100 extra a month pays it off in 21 years, 3 months and saves $36,208. $500 extra pays it off in 13 years, 8 months and saves $103,494. $1,000 extra pays it off in 9 years, 7 months and saves $136,287.
More is better, but even a small amount helps. An alternative is to make one extra payment a year or to round your payment up to the next convenient number.
Make sure the extra goes to principal
Some lenders apply extra money to future payments instead of the principal unless you tell them otherwise. Check how to mark a payment as principal-only, and look at your statement to confirm that the balance fell by the amount you expected.
Read your loan terms for prepayment penalties. Most consumer loans in many places have none, but some do, and the penalty can cancel part of the saving.
Is paying off early always the best use of money?
It depends on the interest rate and on what else you could do with the money. Paying off a high-interest loan or a credit card is almost always a good use of spare cash. For a low-rate loan, you may do better building an emergency fund first or investing, because the guaranteed saving from the payoff is just the interest rate.
Keep enough cash for emergencies before sending every spare dollar to a loan. Compare the loan rate with what you could safely earn elsewhere, and keep in mind that interest may be tax deductible on some loans.
Frequently asked questions
How much interest will I save by paying extra?
Enter your balance, rate, years left and the extra amount. The calculator simulates every month and shows the interest saved.
Does the extra payment go to principal?
It should. Tell your lender that the extra amount must be applied to the principal, and check your statement.
Are there prepayment penalties?
Some loans charge them. Check your loan terms before paying extra.
Is it better to pay extra every month or once a year?
Earlier is better, because the balance falls sooner. A monthly extra saves slightly more than the same total paid once a year.
Does this work for a mortgage?
Yes, for a fixed-rate mortgage. Enter the balance, rate and years left. Taxes and insurance paid through escrow are not part of the loan balance.
Does the calculator include fees?
No. Only principal and interest are modelled.
This calculator gives estimates for information only. Actual figures from a bank, employer, tax authority or doctor may differ. It is not financial, tax, legal or medical advice.