See how extra monthly payments or a one-time lump sum cut years off a mortgage and save interest. Enter loan, rate, term, and overpayments for a private estimat
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Worked example: $300,000 at 6% with $200 extra per month
Monthly rate: 0.06 / 12 = 0.005 over 360 months. Standard payment: 300,000 x 0.005 / (1 - 1.005^-360) = 1,500 / 0.833958 = $1,798.65. Over 360 payments that is 360 x $1,798.65 = $647,514.57, so total interest is $347,514.57 on a $300,000 loan, more than the amount borrowed.
Add $200 per month, so $1,998.65 total. Solving 1.005^-n = 1 - 0.005 x 300,000 / 1,998.65 gives n = 278.4 months: the loan dies at month 279, or 23 years 3 months, cutting 81.6 months (6 years 10 months). Interest paid drops to $256,340, a saving of about $91,175. The first extra $200 is pure principal from month one, and every later saving compounds because interest is charged only on the shrinking balance.
The same loan with a single $10,000 lump sum at month 24 instead behaves differently: payoff moves to month 333 (27 years 9 months) and interest falls to $307,574, saving $39,941. The lump is a one-time shock to the balance; the recurring extra attacks the balance every single month, which is why $200/month outperforms a $10,000 lump by roughly 2.3x in interest saved.
What this model does not cover
The calculator assumes the lender applies extra payments straight to principal with no penalty and no re-amortization. Real US mortgages generally allow this on conventional and FHA loans (prepayment penalties have been banned on most loans originated after January 2014), but some lenders apply extra funds to the NEXT payment instead, which saves nothing; confirm 'apply to principal' on each payment. Auto-pay setups that recalculate your schedule can silently convert your extra into a lower required payment, erasing the payoff benefit.
The rate never changes here. On a 5/1 ARM the payment resets after 60 months, so a $200 overpayment calculated against the initial 6% rate loses meaning at the first adjustment. Escrow for taxes and insurance (often $400-700/month on a $300,000 home) is excluded, so your real monthly outlay is much larger than the $1,798.65 shown, even though escrow does not earn interest savings.
Rounding matters at the edges: the tool floors each month's principal at the remaining balance, so a final partial payment is handled correctly, but payoff dates shift by up to one month versus a bank's exact-day interest accrual (many lenders accrue daily, which can differ by tens of dollars over a full term). Finally, the model treats a lump at month 1 the same as month 300; early lumps save far more, which is why the $10,000 example above is placed at month 24 rather than later.
