Mortgage Payoff Calculator

In the early years of a mortgage, the vast majority of your regular payment covers interest — on a $400,000 loan at 6.75%, roughly 87% of your Year 1 payments is interest. An extra payment made in Year 1 eliminates 29+ years of future interest on that dollar. The same dollar paid in Year 20 eliminates only ~10 years of interest. This is why extra payments made earlier in the loan life have an outsized impact on total interest saved and payoff time.

When you make a payment larger than your regular P&I, the lender first satisfies the scheduled payment (covering all accrued interest plus the scheduled principal), then applies the remainder entirely to principal. This immediately reduces the balance on which next month's interest is calculated. Most lenders require you to designate extra amounts as "principal only" — check your servicer's payment portal or statement to confirm extra payments are being applied correctly and not held as a future payment credit.

A recurring monthly extra payment delivers consistent principal reduction across the entire remaining loan life, compounding over time. A one-time lump sum achieves a large principal reduction immediately, with the interest savings accruing from that point forward. Both approaches are modeled here at face value — the lump sum is applied at the start, the monthly amount is added to every subsequent payment. In practice, a lump sum early and a recurring extra payment thereafter is often more powerful than either alone.

Making extra principal payments does not reduce your required monthly payment — your scheduled P&I stays the same. What changes is the date when the balance reaches zero. (Some lenders offer a "recast" option, which recalculates your payment at the lower balance, but this calculator models the standard case: same payment, shorter term.) If your goal is a lower required monthly payment, a refinance to a lower rate or longer term is the tool for that.

Paying down your mortgage is a guaranteed, risk-free return equal to your interest rate. If your rate is 6.75%, every extra dollar paid down earns exactly 6.75% — certain, tax-equivalent, and uncorrelated with markets. Investing in equities has historically returned more over long periods, but with significant volatility. A 7% expected return is an average — actual results in any given period can range from substantially higher to deeply negative. This asymmetry in certainty is why the payoff-vs-invest decision isn't purely mathematical.

Extra payments make the most mathematical sense when your mortgage rate is high relative to your expected investment return, when you are close to retirement and prefer reduced fixed obligations, or when carrying debt causes financial stress that affects your decisions. For most borrowers in a rate environment above 6%, the guaranteed return of paydown is competitive with long-run equity returns — and certainty has real value that pure expected-value math doesn't capture.

Investing tends to outperform mathematically when mortgage rates are low (3–4%) and expected investment returns are meaningfully higher (7–10%), especially over long time horizons where compounding amplifies the difference. Tax-advantaged accounts (401k, IRA, HSA) with employer matches can further tilt the math toward investing, since the pre-tax contribution and match effectively increase the return. If your rate is below 5% and you have significant remaining term, investing the extra dollars likely builds more wealth over time.

This calculator compares interest saved against estimated investment gains through the original payoff date. It does not model what happens after your accelerated payoff — but paying off your mortgage early frees up your full monthly payment (principal, interest, taxes, and insurance) for investment or other uses. For a $2,700/mo payment paid off 4 years early, that's $130,000+ that can be redirected. This additional benefit generally strengthens the case for paydown even when the direct comparison shows investing winning slightly.