Extra Payment Calculator

What this extra-payment calculator does

Calculates how much you save in interest by putting extra money toward your loan's principal (a mortgage or any other installment loan), minus any prepayment penalty your loan actually charges. Compares your two options: reduce the term (same payment, you finish sooner) or reduce the payment (same term, you pay less each month), so you can pick whichever fits your situation.

The optional penalty and how savings are calculated

Unlike Spain, the US has no single statutory prepayment-penalty rate — most loans have none at all. If yours does, the penalty is whatever percentage your loan agreement specifies, applied to the amount you pay early:

Net savings comes from comparing the interest you'd still owe if you paid nothing extra against the interest left after your extra payment, minus that penalty: Net savings = Original interest − Interest after extra payment − Penalty. If that result is positive, paying extra pays off; if it's negative (uncommon, and only really possible with a nonzero penalty on a short remaining term), it doesn't.

A worked example

Say you have a $20,000 loan at 6.5% interest over 7 years ($296.99/month). After 24 payments, you still owe $15,178.70 with 60 months left. If you pay an extra $5,000 toward principal with no prepayment penalty (the typical case), choosing to reduce the term takes you from 60 to 39 remaining payments (21 payments, or about 1.8 years, saved) for a net interest savings of $1,236.76. Choosing to reduce the payment instead keeps you at 60 months but drops your payment from $296.99 to $199.16/month, for a somewhat smaller net savings of $869.84.

Common mistakes when deciding

• Ignoring a real penalty in the math: if your specific loan does charge a prepayment penalty, comparing only the interest saved without subtracting that cost can make paying extra look better than it is.
• Paying extra with your entire cash cushion: keep an emergency fund before putting every spare dollar toward the loan, so an unexpected expense doesn't leave you without liquidity.
• Not comparing against other savings or investment options: if your loan carries a low interest rate, other uses of that money (an emergency fund, investing) could come out ahead of paying down the loan.
• Defaulting to “reduce payment” out of habit: if your budget can handle it, reducing the term usually produces more total savings; reducing the payment only makes sense if you genuinely need the monthly breathing room.
• Paying extra very late in the loan: in the final years of a standard amortizing loan you've already paid off most of the interest, so an extra payment that late saves much less than the same payment made early on, when the balance — and the future interest on it — is largest.

Frequently asked questions

What actually moves this number

Specific levers, and roughly what each one is worth. Not “save more” — the things that change the figure above by an amount you can measure.

• Tell the servicer in writing where the money goes

  Many servicers apply an unlabeled extra payment as a prepaid future payment rather than to principal, which saves you nothing. Specify "apply to principal" and confirm on the next statement that the balance moved by the amount you sent.

• Front-load if you are going to do it at all

  On a $300,000 30-year loan at 6.5%, an extra $200/month from month one saves roughly $73,000 and five years. The same $200/month started in year fifteen saves a small fraction of that, because there is far less remaining interest left to remove.

• Decide term reduction or recast before you send it

  Keeping the payment and shortening the term saves the most interest. Recasting reamortizes the lower balance and cuts the monthly payment instead, usually for a modest fee. Servicers default to the first; if you want the second, you have to ask.

• Check the note for a prepayment clause first

  Restricted on most qualified mortgages and banned on FHA, VA, and USDA loans — but auto and personal loans vary by contract and state, and a precomputed-interest loan quietly makes early payoff worth much less. Two minutes of reading changes the arithmetic.

What this calculator does not cover

Every calculator simplifies, and the useful thing is knowing exactly where. These are the specific gaps between this estimate and your real situation:

• It assumes the extra payment is applied to principal. Servicers do not always do that by default — some hold it as a prepaid future payment — so the instruction must be given in writing and verified on the next statement.
• It does not check your note for a prepayment penalty. These are restricted on most qualified mortgages and prohibited on FHA, VA, and USDA loans, but auto and personal loans vary by contract and state.
• Precomputed-interest loans do not behave this way. Where interest is calculated up front for the full term, paying early saves considerably less than a simple-interest schedule implies.
• It does not compare the extra payment against other uses of the money — an employer retirement match, high-rate debt, or an unfunded emergency fund all usually outrank it.

For anything that turns on an exact figure, use the primary sources below or a qualified professional. How these limits are decided and disclosed is described in the editorial standards.