Question:

How to calculate the mortgage payoff month, if I make extra payments?

Answer:

When you take a mortgage, it has a specific mortgage period to be fully repaid. For most mortgage loans the payoff month is scheduled to occur on the 180, 240, or 360 month from the date the mortgage is taken.

There are often borrowers who'd like to pay off early their mortgage. Some want to do that by making additional monthly payments, others choose a biweekly plan; some also have the opportunity to make an annual extra payment, or contribute a huge lump sum once during the life of the mortgage.

How do you know when your mortgage will amortize fully with the extra mortgage payments?

Use a mortgage calculator. There are a lot of online mortgage calculators to give you an idea of the pay off month when you pay, say, $250 /month extra starting in month 21 for a $300,000 mortgage at 6.5% for 30 years; or make one single principal payment of $40,000 towards the principal in month 48 for the same mortgage example.

  • For the above example, if you start contributing additional $250 /month towards the principal in the 21st month, and mortgage was taken on July 1, you're your payoff month is December 2030. The 21 month is March 2010. The loan repayment period is reduced with 7 years 4 months, and interest savings are over $105,000.
  • The mortgage payoff month will be the same if you paid $40,000 in the month 48 for the abovementioned mortgage. The interest savings, however, will exceed $128,000.
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