Calculator to Pay off Loan Early

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Reviewed by: David Chen, CFA

This calculator is based on standard amortization formulas, ensuring mathematical accuracy for early loan payoff projections.

Use this calculator to determine how much time and interest you can save by making extra payments on your mortgage or other installment loans.

Loan Payoff Early Calculator

Total Estimated Savings:

$0.00

New Payoff Time:

0 years, 0 months

Step-by-step Amortization Simulation:


            


        
 

        
        


            
Loan Payoff Early Formula

            
The calculation is based on standard loan amortization, which determines the portion of each payment applied to interest and principal.

            
            

                
                $M = P \left[ \frac{i (1+i)^n}{(1+i)^n – 1} \right]$ 


                Where:

                $P$ = Principal Loan Amount

                $i$ = Monthly Interest Rate ($R/1200$)

                $n$ = Original Number of Payments (Months)

                $M$ = Standard Monthly Payment
            

            
            

                Source: Bankrate Loan Calculator | Investopedia Amortization
            


            
Variables Explained:

            
    
                
  • Principal Loan Amount: The initial amount borrowed.
    • 
                
  • Annual Interest Rate (%): The annual rate applied to the remaining principal.
    • 
                
  • Original Loan Term (Years): The planned repayment period for the loan.
    • 
                
  • Extra Monthly Payment: The additional principal-only payment made each month to accelerate the payoff.
    • 
            


            
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What is Loan Payoff Early?

            
Paying off a loan early means making additional payments beyond the required minimum, which are applied directly to the principal balance. Because interest is calculated based on the outstanding principal, reducing the principal faster significantly lowers the total interest paid over the life of the loan.

            
For large loans like mortgages, even a small extra payment, such as $50 or $100 per month, can shave years off the repayment schedule and result in thousands of dollars in savings. The early payoff strategy is a form of debt acceleration that builds equity faster and reduces financial risk.


            
How to Calculate Loan Payoff Early (Example)

            
To manually calculate the effect of an extra payment, you must simulate the amortization schedule:

            
    
                
  1. Determine the Standard Payment: Use the amortization formula ($M$) to find the required minimum monthly payment.
    2. 
                
  2. Calculate New Monthly Payment: Add the “Extra Monthly Payment” (E) to the standard payment ($M + E$).
    3. 
                
  3. Simulate Month 1: Calculate the interest for the month (Principal $\times$ Monthly Rate). Subtract this interest from the New Monthly Payment ($M+E$). The remainder is the principal reduction.
    4. 
                
  4. Update Principal: Subtract the principal reduction from the starting principal. This is the new principal for the next month.
    5. 
                
  5. Repeat Steps 3 & 4: Continue this process month-by-month, tracking the number of payments and the total interest paid, until the principal balance reaches zero.
    6. 
                
  6. Compare Results: The difference between the original total interest and the new total interest is the “Interest Saved.”
    7. 
            


            
Frequently Asked Questions (FAQ)

            

                Does my extra payment always go to the principal?
                
It should. Always specify to your lender that the extra funds are to be applied directly to the principal balance, otherwise they may hold it or apply it to the next month’s payment.


                How much time can $100 extra per month save me?
                
For a 30-year, $200,000 loan at 6.5%, an extra $100 per month can save approximately 4 years and 7 months off the loan term, and over $30,000 in interest.


                What is the best way to make an early payoff?
                
The most effective method is a consistent, small extra payment added to your regular monthly payment. Lump-sum payments, while effective, are less sustainable for most people than a small, regular increase.


                Are there any penalties for paying off a loan early?
                
Some loans (especially older mortgages or specific auto loans) may have prepayment penalties. You should check your loan agreement, though these penalties are rare for standard residential mortgages today.

            


        
 
    
 

    
    


 

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