Loan Payoff Calculator
What paying a little extra each month does to your term and total interest.
Last updated
Your details
Result
- Paid off in
- 16 yr 3 mo
- Interest saved
- $58,872.49
- New monthly payment
- $2,369.56
- Total interest — as scheduled
- $270,693.94
- Total interest — paying extra
- $211,821.45
- Original term
- 20 yr
3 yr 9 mo sooner
$2,169.56 instalment plus $200.00 extra
Every extra pound goes straight at the principal…
balance = balance + interest − (instalment + extra)
Instalment $2,169.56 + extra $200.00 = $2,369.56
20 yr becomes 16 yr 3 mo
Saves $58,872.49
Formula — written step by step
$250,000 at 8.5% over 20 years, paying $200 extra…
balance = balance + interest − (instalment + extra)
Scheduled instalment: $2,169.56
Paying $2,369.56 instead
Balance falls faster every month
Repaid 45 months early
Every extra pound goes straight against the principal, and interest is charged on what is left. The saving compounds: a smaller balance this month means less interest next month, which means more of the next payment attacks the principal too.
A worked example
What $200 a month is worth on a 20-year loan
- Outstanding
- $250,000
- Rate
- 8.5%
- Remaining
- 20 years
- Extra
- $200/month
- Scheduled: 240 payments
- With the extra: 195 payments
- Interest as scheduled: $270,694
- Interest paying extra: $211,821
45 months and $58,872 saved
The extra payments total roughly $39,000 — and buy nearly $59,000 of interest. That gap is the whole argument for overpaying a high-rate loan.
How to use this calculator
- Enter what you still owe, not what you originally borrowed.
- Enter the years remaining rather than the original term.
- Add the extra amount you could pay each month, on top of the scheduled instalment.
- Check with your lender that overpayments reduce the term rather than the instalment — some default to the latter, which saves far less.
Why overpaying early is worth so much more
Interest is charged on the outstanding balance, so a payment made in year one avoids interest on that amount for every remaining year. The same payment made in the final year avoids almost nothing. On a long loan the first years are almost entirely interest, which is exactly when extra principal does the most work.
This is why the interest saved usually exceeds the total extra paid, sometimes substantially, at ordinary mortgage rates.
Check what your lender does with an overpayment
Two lenders can treat the same extra payment quite differently. Reducing the term keeps the instalment and finishes sooner, which is where the large interest savings come from. Reducing the instalment keeps the end date and lowers the monthly cost, which saves much less.
Some loans also carry early repayment charges, typically during a fixed-rate period. Confirm both points before committing to a plan built on this calculation.
Formula & methodology
What this calculator assumes
- Interest is compounded monthly on the reducing balance, which is how most mortgages and personal loans work. Flat-rate loans behave differently and are not modelled here.
- Every extra payment is applied to principal immediately and reduces the term rather than the instalment. Some lenders default to reducing the instalment instead, which saves considerably less.
- The rate is assumed fixed for the remaining term. On a variable or tracker rate the saving moves with the rate.
- Early repayment charges are not included. Many fixed-rate deals cap annual overpayments, commonly at 10% of the balance.
- The final payment is trimmed to clear the balance exactly rather than overshooting it.
Sources
- Brealey, Myers & Allen, Principles of Corporate Finance, 13th edition, McGraw-Hill, 2019 — amortizing loans and prepayment.
Frequently asked questions
Should I overpay the loan or invest the money?
Overpaying returns a guaranteed amount equal to your interest rate, tax-free. Investing might return more but might not. At high loan rates the guaranteed return is hard to beat; at low rates the argument shifts. This is not financial advice.
Does a lump sum work better than monthly extras?
A lump sum paid earlier beats the same total spread out, because it removes the balance sooner. Both are shown to help by far more than their face value on a long loan.
Will overpaying hurt my credit score?
No. Repaying debt faster is neutral to positive. Closing the account eventually removes an active account from your file, which can have a small effect on the length-of-history factor.