This calculator is designed to model standard mortgage amortization, incorporating the effect of extra payments—a core tenet of the Dave Ramsey financial plan.
Use this calculator to determine your standard monthly mortgage payment and, more importantly, how much time and interest you can save by implementing extra payments, aligning with the “Debt-Free Home” strategy.
Dave Ramsey Mortgage Payment Calculator
Standard Monthly Payment (P&I)
Enter values and click Calculate.
Dave Ramsey Mortgage Payment Calculator Formula
M = P * [ i * (1 + i)^n ] / [ (1 + i)^n – 1 ]
Where:
M = Monthly Payment
P = Principal Loan Amount
i = Monthly Interest Rate (Annual Rate / 12 / 100)
n = Total Number of Payments (Loan Term in Years * 12)
Formula Source: Investopedia – Calculating Mortgage Payments and Bankrate Mortgage Calculator
Variables Explained
- Loan Principal: The initial amount borrowed.
- Annual Interest Rate (%): The annual rate applied to the loan.
- Loan Term (Years): The total length of the loan (e.g., 15 or 30 years).
- Extra Monthly Payment: The additional amount you plan to pay each month, which accelerates payoff and is the key element of the Dave Ramsey debt-free home plan.
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What is the Dave Ramsey Mortgage Payment Strategy?
The standard mortgage payment calculation determines the minimum monthly amount required to fully amortize the loan over the defined term. Dave Ramsey, however, strongly advocates for a “Debt-Free Home” as quickly as possible. His strategy involves paying extra principal each month, often equivalent to one extra principal payment per year, to drastically reduce the loan term and total interest paid.
This calculator helps illustrate the power of that extra payment. By consistently adding even a small amount to your monthly payment, you attack the principal balance faster, meaning less interest accrues over the life of the loan. The result is shaving years off your mortgage and saving tens of thousands in interest.
How to Calculate Mortgage Payoff with Extra Payments (Example)
- Find the Standard Payment: Calculate the minimum monthly payment (M) using the amortization formula with your principal (P), rate (R), and term (N).
- Determine Total Payment: Add your desired extra payment (E) to the standard payment (Total Payment = M + E).
- Iterative Amortization: Start with the full principal balance. For the first month, calculate interest (Balance * Monthly Rate). The amount of principal paid is Total Payment minus the interest.
- Recalculate Balance: Subtract the principal paid from the balance.
- Repeat: Continue this process month by month. The loan is paid off when the balance reaches zero. The total number of months in the loop determines your new, shorter loan term.
- Compare: Calculate the original total interest (M * N * 12 – P) and compare it to the new total interest paid to determine savings.
Frequently Asked Questions (FAQ)
Dave Ramsey strongly recommends a 15-year fixed-rate mortgage. He advises against 30-year mortgages and adjustable-rate mortgages (ARMs) due to the higher total interest and risk, respectively. However, if you already have a 30-year mortgage, the strategy is to pay it off like a 15-year loan.
Does paying extra principal really save that much?Yes, because mortgage interest is calculated on the remaining principal balance. By paying extra principal, you reduce the balance sooner, which means less interest accrues every month, creating a compounding effect of savings.
Where should the extra payment be applied?You must explicitly mark the extra money as “additional principal payment.” If you do not specify, the lender may incorrectly apply it to the next month’s payment or hold it in escrow.
What is the maximum extra payment I can make?There is typically no limit, as long as your mortgage does not have a prepayment penalty (which is rare for standard US mortgages but should be verified). The more you pay toward principal, the faster you get debt-free.