Mortgage Payoff Calculator

A standard mortgage is amortized so that early payments are almost entirely interest. On a $350,000 mortgage at 6.8%, your first payment of around $2,285 applies roughly $1,983 to interest and only $302 to principal. Because interest is calculated on the outstanding balance each month, every extra dollar you pay toward principal immediately reduces the interest charged in every subsequent month — creating a compounding savings effect that grows over the life of the loan.

The earlier you start making extra payments, the more you save. An extra $200 per month applied in year one of a 30-year mortgage saves dramatically more than the same $200 per month starting in year 15. This is because early in the loan, the balance is highest and every dollar of principal reduction eliminates the most future interest. If you can only afford extra payments for a limited period, making them as early as possible maximizes your savings per dollar invested.

Extra monthly payments and lump sum payments both reduce your principal and save interest, but they work differently. A lump sum — say, a tax refund or bonus — immediately reduces your balance, cutting interest from that point forward in one step. Regular extra monthly payments achieve the same effect gradually but are often easier to budget for. The most effective strategy for homeowners with both options available is to apply lump sums when possible and add a modest extra monthly amount on a consistent basis.

Before making extra payments, confirm with your lender how to designate the additional funds. Most lenders allow you to specify "apply to principal only," which prevents them from applying your extra payment to the next month's scheduled payment instead of reducing your balance. This is critical — if the extra money is applied as a prepaid installment rather than a principal reduction, you will not receive the full interest savings. Ask your lender or mortgage servicer for the correct process, which is often a checkbox on their online payment portal.

Refinancing and making extra payments are not mutually exclusive strategies. If rates have dropped significantly since you took out your mortgage, refinancing to a lower rate can reduce your required monthly payment, freeing up cash that you can then direct as extra principal payments. However, refinancing involves closing costs of 2–5% of the loan amount, so break-even analysis is essential. Extra payments without refinancing are lower friction, require no qualification, and provide a guaranteed return equal to your current interest rate. For homeowners with investment properties, consider whether extra mortgage payments or additional property acquisitions offer better long-term returns by also reviewing our rental property analyzer.