Extra Payment Calculator
An overpayment goes straight at the principal, so it removes not just that amount but every year of interest that would have been charged on it. The saving is usually far larger than people expect.
Interest saved
$103,448.79over the loan
- Interest saved
- $103,448.79
- Time saved
- 6 years 11 months
- New payoff
- 23 years 1 month
- Normal payment
- $1,896.20
- With the extra
- $2,096.20
- Interest without
- $382,633.47
- You would pay $55,400.00 more in extra payments and save $103,448.79 in interest.
- Extra payments come off the principal, so every later month carries less interest. That compounding is why a modest amount saves so much.
- Check that your lender applies overpayments to the principal rather than holding them against the next instalment, and that there is no early repayment charge.
About the extra payment calculator
Every pound of an overpayment does two things. It clears a pound of debt, and it cancels all the future interest that pound would have accrued. On a thirty-year loan that second effect is much the larger of the two, and it is why the numbers here look implausible until you follow them through.
On a $300,000 mortgage at 6.5%, an extra $200 a month saves $103,449 in interest and clears the loan six years and eleven months early. You pay in about $55,400 of overpayments across those twenty-three years and get roughly $103,400 back — close to two pounds saved for every one paid in.
Timing matters as much as the amount. The same overpayment made in year two removes twenty-eight years of interest; made in year twenty-eight it removes two. If you are going to overpay at all, early is worth several times late.
Two things to check before starting. Some lenders hold an overpayment against the next instalment rather than applying it to the principal, which achieves nothing — it has to reduce the balance. And some loans carry an early repayment charge, usually for a fixed initial period, which can make overpaying expensive until it expires.
One thing this deliberately does not do is tell you whether to overpay. Money used to clear a 6.5% debt earns a guaranteed 6.5%, which is a good return with no risk. But it is also money you cannot get back without borrowing again, and an emergency fund usually comes first.
What it works out
- Interest saved over the life of the loan
- Years and months cut off the term
- What the overpayments add up to
- Any loan — mortgage, car, personal or student
The formula
Each month: Balance = Balance + Interest − (Payment + Extra)
There is no closed formula for this. The extra changes how fast the balance falls, which changes next month's interest, which changes how much of the following payment reaches the principal — so it has to be simulated month by month until the balance reaches zero.
That feedback is the whole reason the saving is so large. The first $200 removes $200 of debt, and that $200 was going to be charged 6.5% a year for the next thirty years. Every subsequent month starts from a slightly smaller balance than it otherwise would have, and the gap widens each time.
On a $300,000 loan at 6.5%, $200 a month turns a thirty-year term into twenty-three years and one month. Total interest falls from $382,633 to $279,185 — a saving of $103,449 for about $55,400 of overpayments.
The comparison to make is against what the same money would earn elsewhere. Clearing a 6.5% debt is a guaranteed 6.5% return, tax free, with no market risk — which is a high bar. The catch is liquidity: once it is in the house you cannot spend it.
- Balance
- What is still owed. The extra pushes it down faster every month.
- Interest
- The balance times the monthly rate, recalculated each month.
- Payment
- The contractual monthly payment, unchanged.
- Extra
- What you add on top, applied to the principal.
A worked example
A $300,000 mortgage at 6.5% over thirty years, with an extra $200 paid every month from the start.
That works out to $103,448.79 over the loan.
- Interest saved
- $103,448.79
- Time saved
- 6 years 11 months
- New payoff
- 23 years 1 month
- Normal payment
- $1,896.20
- With the extra
- $2,096.20
- Interest without
- $382,633.47
Questions
How much does paying an extra $200 a month save?
On a $300,000 mortgage at 6.5% over thirty years, $103,449 in interest, and it clears the loan six years and eleven months early. The overpayments themselves come to about $55,400 across those years.
Is it better to overpay or to invest the money?
Overpaying a 6.5% loan is a guaranteed 6.5% return with no risk and no tax on it, which is a high bar for an investment to beat reliably. The trade-off is that the money becomes illiquid — you cannot get it back without borrowing again — so an emergency fund normally comes first.
Does it matter when in the term I overpay?
Enormously. An overpayment in year two cancels twenty-eight years of interest on that amount; the same amount in year twenty-eight cancels two. Early overpayments are worth several times what late ones are.
Will my monthly payment go down if I overpay?
Usually not by default. Most lenders keep the payment the same and shorten the term, which is what this calculates and what saves the most. Some will recalculate the payment against the smaller balance instead — that reduces the monthly cost but saves far less interest.
Do I need to tell my lender the extra is for the principal?
Yes, and it is worth being explicit. Some lenders hold an overpayment as a credit against the next instalment, which achieves nothing at all. It has to reduce the outstanding balance to have any effect.
Is there a penalty for overpaying?
Sometimes. Early repayment charges are common during a fixed-rate period and often allow a set amount — frequently ten per cent of the balance a year — free of charge. Check the terms before starting, and check again when a fixed period ends.
Is one lump sum as good as monthly overpayments?
A lump sum paid today beats the same total dripped in over years, because it starts cancelling interest immediately. But regular overpayments are easier to sustain and easier to stop if things change.
What about paying half the payment every two weeks instead?
That is a different route to the same place. Twenty-six half payments a year is thirteen monthly payments rather than twelve, so it works out as roughly an eight per cent overpayment — with the advantage that it happens automatically.