%
Monthly payment
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Months saved
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Interest saved
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Total interest
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Payment schedule
Why a small extra payment does so much
- Every extra dollar goes straight to the principal. It is not shared with interest, so it removes the interest that principal would have cost for the rest of the loan.
- The saving is compared against the real alternative. The months and interest saved are computed by running the identical loan without the extra payment, not from a formula that approximates it.
- Early payments count for far more than late ones. The same extra amount in year 2 saves several times what it saves in year 20, because it removes interest over a longer remaining term.
- The schedule closes on zero. The final payment is adjusted down to whatever is actually left.
- Check your loan allows it. Some fixed-rate loans charge a penalty for early repayment or cap it per year. The arithmetic here assumes no penalty.
A useful thing to try
Set the extra payment to roughly a tenth of the monthly payment and look at the months saved. On a 25-year loan that is typically three to four years off the term, for an amount most budgets would not notice missing.