Extra Payment Calculator
See how extra payments can save you thousands in interest and years of payments.
Loan Details
Extra Payments
Added to every monthly payment
One extra payment per year (tax refund, bonus)
Inheritance, bonus, or windfall payment
Your Savings
Extra Payments Save You Money
With your extra payment strategy, you'll save $0 in interest and pay off your loan 6.9 years early.
ROI: 0% return on extra payments
Interest Saved
$0
0.0% reduction
Time Saved
0.0 years
0 months earlier payoff
Return on Investment
0%
Interest saved per extra dollar paid
Total Extra Paid
$0
Your additional investment
Your payoff date moves from December 2055 to January 2049
Original Total Interest
$0
New Total Interest
$0
Net Savings
$0
New Payoff Date
January 2049
Loan Balance Comparison
Base vs Extra Payments
| Metric | Base Loan | With Extra | Savings |
|---|---|---|---|
| Monthly Payment | $1,896 | $1,896 | - |
| Avg. Payment (incl. Extra) | - | $2,091 | +$195 |
| Total Months | 360 | 277 | -83 months |
| Total Interest | $382,633 | $279,185 | -$103,449 |
| Total Payments | $682,633 | $579,185 | -$103,449 |
Understanding Extra Loan Payments: Your Complete Guide to Accelerated Debt Freedom
How Extra Payments Save You Money
Making extra payments toward your loan principal is one of the most powerful strategies to save money and achieve debt freedom faster. Whether it's a mortgage, auto loan, student loan, or personal loan, every extra dollar applied to principal reduces the total interest you'll pay over the life of the loan.
When you make a regular payment, a portion goes to interest and the rest goes toward principal. Early in the loan, most of your payment is interest. Extra payments go entirely toward principal, which has a compounding effect:
- •Reduces Principal Faster: Lower principal means less interest accrues each month.
- •Shortens Loan Term: You reach a zero balance months or years ahead of schedule.
- •Saves Compound Interest: Every dollar saved in interest is a dollar you keep.
- •Builds Equity Faster: For secured loans like mortgages, you own more of your asset sooner.
Real Numbers: The Power of Extra Payments
Consider a $300,000 mortgage at 6.5% interest for 30 years. Your regular payment is $1,896. Here's what happens with different extra payment strategies:
- •No Extra Payments: 360 payments over 30 years, paying $382,633 in total interest.
- •$200 Extra Monthly: Pay off in 23.5 years, saving $109,000 in interest. That's a 458% return on your extra payments!
- •$500 Extra Monthly: Pay off in 18 years, saving $182,000 in interest and freeing up $1,896/month 12 years early.
Types of Extra Payment Strategies
Extra Monthly Payments
The most consistent and powerful approach is adding a fixed amount to your regular monthly payment. Even small extra amounts create significant savings over time. This strategy is ideal because it's systematic, easy to budget for, and creates a disciplined payoff approach.
Best for: Borrowers with steady income who can commit to a regular extra amount. Start with what you can afford—$50, $100, or $200 per month all make a difference.
Annual Extra Payments (13th Payment)
The 13th payment strategy involves making one extra full payment each year, often funded by tax refunds, annual bonuses, or year-end windfalls. Making one extra payment per year on a 30-year mortgage can shave 4-6 years off the loan term.
Best for: Borrowers who receive predictable annual bonuses, tax refunds, or other yearly windfalls. Many people apply their entire tax refund directly to loan principal.
One-Time Lump Sum Payments
Occasionally you might come into a larger sum of money—inheritance, investment gains, property sale proceeds, or a signing bonus at a new job. Applying a lump sum to your loan principal creates immediate and substantial interest savings. The earlier in the loan term you make a lump sum payment, the greater the impact.
Best for: Anyone receiving unexpected money or selling assets. Consider your overall financial picture—ensure you have adequate emergency savings and high-interest debt paid off first.
Combination Strategy
The most aggressive approach combines all three methods: regular extra monthly payments, annual lump sums, and one-time windfalls when available. This maximizes your interest savings and dramatically shortens your loan term. Use the calculator above to model different combinations and find what works for your budget.
When Extra Payments Make Sense
Extra loan payments aren't always the best use of your money. Consider these scenarios where extra payments are most beneficial:
Best For:
- •High interest rate loans (above 6-7%)
- •Long loan terms (30-year mortgages, lengthy auto loans)
- •After emergency fund is established (3-6 months expenses)
- •When you've maximized retirement contributions and employer matches
- •For peace of mind and psychological benefits of debt freedom
Consider Alternatives First:
- •High-interest debt (credit cards at 18-25% APR)
- •Employer 401(k) match—never leave free money on the table
- •Emergency fund if you don't have 3-6 months saved
- •Very low interest rates (below 3-4%) where investing may provide better returns
Critical Considerations
Check Your Loan Terms
Before making extra payments, review your loan documents:
- •Prepayment Penalties: Some loans charge fees for early payoff. Most mortgages after 2010 and federal student loans have no penalties.
- •Payment Application: Specify "principal only" to ensure extra payments reduce principal, not advance future payments.
- •Verify on Statement: Check your next statement to confirm the extra payment reduced your principal balance.
Timing Matters
Earlier is always better for extra payments because you avoid more interest over the remaining loan term:
- •A $10,000 extra payment in year 1 saves far more than the same payment in year 20
- •However, any time is a good time—the second best time is today
- •Consistent smaller payments often beat waiting for large lump sums
Who Benefits Most from Extra Payments?
Extra payments aren't the right choice for everyone. You're an ideal candidate if:
- •You're in the early to middle years of your loan (the impact diminishes near the end)
- •You have a moderate to high interest rate (above 5-6%)
- •You've already maximized tax-advantaged retirement accounts
- •You want the psychological benefit of paying off debt faster
- •You're planning to stay in your home or keep your asset long-term
- •You prefer the guaranteed return of debt payoff over uncertain investment returns
Getting Started: Step-by-Step Guide
Ready to start saving? Follow these steps to implement your extra payment strategy:
- 1.Review Your Loan Documents: Confirm there are no prepayment penalties and understand how extra payments are applied.
- 2.Contact Your Lender: Ask about making principal-only payments. Many have online portals with dedicated fields for extra principal.
- 3.Choose Your Strategy: Use this calculator to model different scenarios—monthly extras, annual lump sums, or one-time windfalls.
- 4.Set Up Automatic Payments: Automate extra payments so you never forget. Consistency is key to maximizing savings.
- 5.Verify Payment Application: For the first few months, check your statements to confirm extra payments are reducing principal.
- 6.Track Your Progress: Monitor your balance quarterly and celebrate milestones. Use the projected payoff date to stay motivated.
Final Thoughts
Extra loan payments represent one of the most straightforward strategies for saving thousands of dollars in interest and achieving debt freedom years earlier than planned. The math is simple: every extra dollar toward principal today saves you multiple dollars in future interest.
However, like any financial strategy, extra payments require careful consideration of your complete financial picture. Before implementing this approach, ensure you have adequate emergency savings, are maximizing retirement contributions (especially employer matches), and have paid off higher-interest debt.
Use this calculator to run different scenarios based on your specific loan terms. See how much you could save and decide whether extra payments align with your financial goals. Even small extra payments—$50 or $100 per month—create significant savings over time. Start with what you can afford, automate the payment, and adjust as your financial situation improves.
Additional Frequently Asked Questions
How do extra payments actually reduce my loan balance?
When you make a regular payment, part goes to interest and part to principal. Extra payments go entirely toward principal, immediately reducing your loan balance. Lower principal means less interest accrues each month, creating a compounding effect. A $200 extra payment today saves far more than $200 over the life of the loan because you avoid all the future interest that would have accumulated on that $200.
Should I make extra payments or invest the money instead?
Compare your loan interest rate to expected investment returns after taxes. If your loan is 7% and you expect 10% returns, investing might win mathematically. However, loan payoff is a guaranteed return while investments carry risk. Many people value the certainty and peace of mind of being debt-free. A balanced approach is to max out retirement accounts with employer matches first, then split extra money between investments and debt payoff.
Does making extra payments reduce my monthly payment amount?
No, extra payments don't reduce your required monthly payment—they reduce the total number of payments needed to pay off the loan. Your monthly bill stays the same, but you finish paying years earlier and save thousands in interest. If you want a lower payment, you'd need to refinance or ask your lender about a mortgage recast, which recalculates your payment based on the lower balance.
When is the best time to make extra payments?
Earlier is always better for extra payments because you avoid more interest over the remaining loan term. A $10,000 extra payment in year 1 of a 30-year mortgage saves far more than the same payment in year 20. However, any time is a good time—the second best time is today. Making consistent smaller extra payments is often more sustainable than waiting for large lump sums.
How do I ensure extra payments go to principal, not future payments?
Always specify that extra payments should apply to principal reduction. Most lenders have a "principal only" option on their payment portal or coupon. Some people make a separate payment labeled "principal only" in addition to their regular payment. Check your next statement to verify the extra amount reduced your principal balance rather than being applied to future payments or an escrow account.
Can I make extra payments on any type of loan?
Most loans allow extra payments, including mortgages, auto loans, student loans, and personal loans. Federal student loans never have prepayment penalties. Most mortgages originated after 2010 also have no penalties. Check your loan documents for prepayment penalty clauses—they're more common with some auto loans, personal loans, and non-qualified mortgages. If you have a penalty, calculate whether the interest savings still exceed the penalty cost.
Is it better to pay extra monthly or one lump sum annually?
From a pure interest savings perspective, monthly extra payments are slightly better because they reduce principal sooner and more frequently. However, the difference is minimal. What matters most is consistency and total amount. If you're more likely to follow through with annual lump sums from tax refunds or bonuses, that approach will beat monthly payments you forget to make. Choose the method that fits your financial habits.
Should I pay off my mortgage early or keep the tax deduction?
The tax deduction for mortgage interest is often overrated. Since the standard deduction increased significantly in 2018, most homeowners don't benefit from itemizing mortgage interest. Even if you do itemize, you only save your marginal tax rate times the interest—so if you're in the 24% bracket and pay $10,000 in interest, you save $2,400 in taxes but still paid $7,600 net. Paying off the mortgage eliminates the full $10,000 interest cost.
What if I can't afford consistent extra payments?
Any extra payment helps, even if inconsistent. Round up your payment to the nearest $50 or $100—small amounts add up. Apply windfalls like tax refunds, rebates, or work bonuses. Some people use the "found money" approach: whenever they receive unexpected money, half goes to loan payoff. Even one extra payment per year—equivalent to bi-weekly payments—can shorten a 30-year mortgage by 4-5 years.
How does extra payment compare to refinancing?
Both strategies reduce total interest paid, but work differently. Refinancing to a lower rate reduces your interest rate immediately but involves closing costs ($3,000-$10,000+) and restarts your loan term. Extra payments keep your current rate but accelerate payoff at no cost. If rates have dropped 1%+ and you'll stay in the home long enough to recoup closing costs, refinancing plus extra payments maximizes savings. Otherwise, extra payments alone are cost-free and effective.