LoanLedger

What paying a bit more is worth

A lump sum, or a small amount on every payment. See the years removed and the interest avoided.

This is a calculator, not advice. It tells you what the arithmetic does at the numbers you type in. It does not know your income, your other debts or your plans, and it does not recommend a rate, a term or a lender. For advice about your own situation, talk to a licensed financial adviser or mortgage broker.

The most leveraged money in a mortgage

An extra payment is the one lever on a mortgage that is entirely under your control and immediately effective. It does not require refinancing, a conversation with anybody, or a change in rates. And because it applies wholly to principal, its effect compounds backwards through the remaining term of the loan.

The numbers surprise people. On a $650,000 loan at 6.5% over thirty years, an extra $100 a fortnight — roughly a takeaway dinner — typically removes several years from the term and tens of thousands from the total interest. The reason is not the $100. It is that the loan ends earlier, and every payment that never has to be made was mostly interest.

Timing matters more than amount

The same total, paid earlier, saves more. A $10,000 lump sum in year three of a thirty-year loan avoids interest on that $10,000 for twenty-seven years; the same $10,000 in year twenty-five avoids almost none. If you have a choice about when, choose sooner — and if you are early in a loan, this is the single highest-value period of the whole term for extra repayments.

Check your fixed-rate limits first

Fixed-rate loans commonly cap extra repayments, because repaying early costs the lender interest they had priced in. The cap is usually generous enough for a regular small extra and restrictive enough to matter for a large lump sum. Find out what yours is before you make a plan around a number on this page.

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Fixed term endingModel the rollover, and what extra repayments do to itFull scheduleEvery payment with the interest and principal splitCompound interestThe other side of the same maths, for savings

Questions

Why does a small extra payment save so much?
Because every extra dollar goes entirely against principal, and principal is what interest is charged on for the rest of the loan. A dollar paid off in year two avoids interest for twenty-eight years. The same dollar paid in year twenty-five avoids almost nothing. This is why the effect looks disproportionate — it is not the dollar, it is the decades it removes.
Lump sum or a bit extra each payment?
Compare both here, but the general shape is that a lump sum early beats the same total spread out, for the same reason as above — earlier money avoids more interest. In practice most people find the regular extra easier to sustain, and a sustained small extra beats a lump sum they intended to make and never did.
Will my lender let me?
On a floating loan, almost always. On a fixed loan there is often a cap on how much extra you can pay in a year without a fee — commonly a set dollar amount or a percentage of the balance — because early repayment costs the lender the interest they priced in. Check your specific loan before committing; this tool does the arithmetic, not the contract.
Is paying down the mortgage the best use of the money?
That is a genuine financial question with no universal answer, and it depends on your interest rate, your tax position, your other debts and your risk appetite. What can be said arithmetically is that repaying a loan at 6.5% is a guaranteed 6.5% saved, which is a high bar for a risk-free return. Whether that beats your alternatives is a conversation for an adviser, not a calculator.