Accelerate Your Journey to Debt Freedom
Making small extra payments early in your loan cycle dramatically cuts down compounding interest. Calculate your savings instantly below.
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Accelerated Savings
Redirecting your saved monthly payments ($0/mo) for the 0 years you saved at a 7% annual return accumulates this wealth.
Understanding Extra-Payment Payoff Math
How do extra payments save money?
Every standard loan payment is divided into two parts: interest (the cost of borrowing) and principal (paying down the original balance). Early in your loan, almost all your payment goes to interest.
When you make an extra payment, 100% of that extra amount goes directly to paying down the principal. By lowering the principal balance earlier, the interest calculation for all subsequent months is based on a smaller number, causing less interest to compound.
What is the difference between principal and interest payments?
Your standard payment is calculated so that your loan will be fully paid off by the end of the term. Interest is computed monthly using the formula: Interest = Remaining Balance × (Annual Rate / 12).
Whatever is left over from your standard payment is applied to your principal. Extra payments bypass this monthly split entirely, attacking the principal directly and shortening the lifespan of your debt.
Should I pay off my mortgage or invest instead?
This depends on the interest rate of your loan. Paying off a loan with a 6.5% interest rate yields a guaranteed return of 6.5% on your money, tax-free.
If you can reliably make higher returns in the stock market (historically ~7% to 10% after inflation), investing might yield higher net wealth over 30 years. However, paying off debt offers psychological freedom and eliminates risk, which is invaluable.
How does a bi-weekly payment schedule compare?
A bi-weekly schedule involves paying half your monthly mortgage payment every two weeks. Since there are 52 weeks in a year, you end up making 26 half-payments, which equals 13 full monthly payments instead of 12.
This simple shift has the exact same effect as making an extra monthly payment equivalent to 1/12th of your standard payment, shaved off and applied throughout the year.