Loan Early Payoff Calculator

How extra payments shorten a fixed-rate loan

A standard amortising loan splits each monthly payment between interest (charged on the outstanding balance) and principal (which reduces the balance). Early in the loan, most of the payment is interest because the balance is large; later in the loan, most goes to principal because the balance has fallen. An extra monthly payment goes entirely to principal — there is no interest charged on it because it isn't a charge against the existing balance — so it shrinks the balance ahead of schedule. That smaller balance accrues less interest in every subsequent month, which compounds over the remaining term.

How to use it

Enter the loan principal, the annual interest rate, the term in years, and the extra monthly amount being applied on top of the standard payment. The calculator simulates the loan month-by-month with and without the extra and returns months saved off the original term, total interest saved, and the new payoff month count. The currency selector at the top of the calculator changes formatting throughout — the math itself is currency-neutral.

Worked example

Picture a 200,000 loan at 6.5% over 30 years with 200 extra per month (currency follows the selector). The base monthly payment is around 1,264.14; the new payment with the extra is 1,464.14. Simulated month-by-month, the loan pays off in 250 months instead of 360 — that's 110 months saved, almost 9.2 years. Total interest paid drops from around 255,089 to around 165,012, an interest saving of roughly 90,077. Drop the extra to 100 per month and months saved fall to around 71; raise it to 400 and months saved rise to around 152.

How the math works

For each scenario, the calculator runs a month-by-month amortisation simulation: each month, interest = balance × monthly rate, principal portion = payment − interest, balance = balance − principal portion. With the extra, the same loop runs at a higher payment. Months saved = original term in months − months to payoff with extra. Interest saved = total interest under base payment − total interest under the new payment. The simulation is more accurate than a closed-form approximation because amortisation isn't linear in the extra amount.

Why early extra payments save more than late ones

Because interest is charged on the outstanding balance, the same extra dollar saves more interest the earlier in the loan it lands. An extra in month 1 means every subsequent month carries a slightly smaller balance and a slightly smaller interest charge — that gap accumulates across the remaining term. The same extra applied in the second-to-last month only saves the interest on that one month's reduced balance. The calculator captures this because it simulates each month explicitly rather than approximating with averages.

Lump sum versus regular extra

A single lump-sum overpayment lands the full amount on the principal in one month and reduces the balance for the entire remaining term. A regular monthly extra accumulates more slowly. Mathematically, a lump sum applied early saves more interest than the same total amount spread monthly over many months. Behaviourally, regular extras are easier to maintain and don't require finding a single large amount. This calculator models the regular monthly approach; for a lump-sum scenario, run it once with extra = 0 to see the baseline and re-run with the principal reduced by the lump-sum amount.

Where this calculation has limits

The model assumes a fixed rate, equal monthly payments, no fees, and that any extra payment is applied entirely to principal in the same month. Some loan agreements require explicit instructions to apply extras to principal rather than holding them against the next month's regular payment; the loan servicer's terms determine the actual behaviour. Variable-rate loans, loans with arrangement or early-repayment fees, and loans where the rate resets at intervals all behave differently from this baseline.

Early-repayment charges

Some loans, particularly some mortgages, levy an early-repayment charge for paying off ahead of schedule. The charge is typically a percentage of the amount being repaid early or a fixed number of months' interest. Many products allow penalty-free overpayments up to an annual cap (often around 10% of the balance per year) and only charge for amounts above that. The specific terms appear in the loan agreement; consumer-protection regulators in many countries (including the financial regulator and the CFPB in the US) publish guidance on how these charges are structured and disclosed.