Mortgage payoff calculator

See how much interest an extra payment saves and how many years it cuts — then see whether that extra dollar would do more invested instead. Real rates, real math.

How the math works

A fixed-rate mortgage is a level-payment loan. The monthly principal-and-interest payment is fixed by the balance, the rate, and the months left:

Where M is the monthly payment, P is the remaining balance, i is the monthly rate (annual rate divided by 12), and n is the months left. Each month, interest is charged on the outstanding balance first, and whatever the payment covers beyond that reduces principal.

Extra payments work because every dollar you add goes straight to principal. That principal never accrues interest again, so the effect compounds: a lower balance means less interest next month, which means more of the fixed payment attacks principal, which lowers the balance faster still. The calculator runs the schedule month by month both ways — on the contract schedule and with your extra — and reports the difference in months and in total interest.

Worked example

Take a $320,000 balance at the Freddie Mac 30-year average of 6.85%, with 27 years left. The principal-and-interest payment is $2,169.81 a month. Left alone, the loan runs its full 324 months and costs $383,019 in interest.

Now add $200 a month to principal — a round figure chosen to show the mechanism, not a benchmark. The loan clears in 259 months instead of 324. That is 21 years 7 months rather than 27 years — 65 months, or roughly five and a half years, off the term. Total interest drops to $293,339. The extra $200 a month saves $89,680 in interest.

The saving is real and it is large. Whether it is the best use of that $200 is the question the next section answers.

When this calculator is wrong

The interest-saved number is honest, but on its own it makes prepaying look like a free win. It isn't free — the money comes from somewhere, and that dollar had other jobs it could do. Here is where the calculator misleads if you read it alone.

• It ignores the opportunity cost. An extra dollar of principal earns a guaranteed return equal to your rate — at 6.85%, prepaying is a risk-free 6.85%. That is genuinely good. But the same dollar in a broad stock index has returned 10.2% a year on average since 1926, or 7.0% after inflation. Prepaying wins on certainty; investing has won on expected value. The gap between a guaranteed 6.85% and a risky 7.0% real is the whole decision, and no payoff calculator shows it.
• It assumes the mortgage-interest deduction still applies to you. The old objection to prepaying — "but you lose the tax deduction" — barely applies anymore. Since the 2017 standard deduction nearly doubled, fewer than 12% of filers itemize. If you take the standard deduction, your mortgage interest was never deductible to begin with, so prepaying costs you no tax break and the guaranteed return is the full 6.85%, not an after-tax rate.
• It treats the extra payment as locked away. Money sent to principal is gone until you sell or refinance — you cannot get it back for an emergency. A dollar in a savings account or index fund stays liquid. Prepaying a 6.85% loan while carrying a credit-card balance at the average 22.76% APR is the clearest version of this mistake: the credit card is the higher-rate, guaranteed-return payoff.
• It ignores where the loan sits in your priorities. A 6.85% mortgage is a middling rate. Employer 401(k) match, high-interest debt, and a funded emergency reserve all clear a higher bar. Prepaying is a reasonable move once those are handled, not before.

What to do with the result

If your rate is well above the market's expected return — a card at 22.76%, a personal loan in the teens — the payoff math wins outright, and the extra dollar belongs there first. On a mortgage in the 6–7% range, prepaying is a defensible, low-risk choice, but it is a close call against investing, and the honest answer is that it depends on how much you value certainty over a slightly higher expected return.

One practical rule holds regardless: clear anything above your mortgage rate first, capture any employer match, and keep an emergency fund liquid. Prepaying the mortgage comes after those, not instead of them. If the calculator says an extra payment saves you tens of thousands, that number is correct — just weigh it against what the same money does in an index fund before you commit it to the house.

Common questions

Is it better to pay off my mortgage early or invest?

Prepaying earns a guaranteed return equal to your rate — 6.85% on this loan. A stock index has averaged 10.2% a year (7.0% after inflation) but carries risk and no guarantee. If your mortgage rate is below the market's long-run return, investing has the higher expected value; if you weight certainty heavily or your rate is high, prepaying wins. It is a close call in the 6–7% range.

Do extra mortgage payments go straight to principal?

Only if you tell the servicer to apply them that way. An unmarked extra amount is often applied to the next month's payment, or held in escrow, instead of principal. Note "apply to principal" on the payment, and confirm the balance dropped by the full amount.

Should I pay off the mortgage or a credit card first?

The credit card, almost always. The U.S. average credit card APR on balances assessed interest is 22.76%, more than three times a 6.85% mortgage. Paying off the higher-rate debt is the larger guaranteed return, and it frees up cash flow faster.

Will I lose my tax deduction if I pay the mortgage down?

Probably not, because you likely aren't using it. Fewer than 12% of filers itemize since the 2017 standard deduction nearly doubled. If you take the standard deduction, mortgage interest gives you no federal tax benefit, so prepaying costs you nothing on taxes.

Does a lump sum or a monthly extra save more?

A lump sum applied early saves more per dollar, because the money starts avoiding interest sooner and for longer. A monthly extra is easier to sustain and still compounds. Use whichever you will actually keep up — an extra you stop making in year three saves far less than the calculator projects.