# How to Calculate an Early Mortgage Payoff

At your mortgage closing, once you sign on the dotted line you have made a commitment for a long time; usually 30 years. Today, the commitment is often even longer because the 40 year mortgage is now becoming popular.

When you look to see how much principal you have paid by the end of your mortgage, it usually brings a certain amount of awe and a lot of disgust. The total amount paid on your mortgage over the course of 30 years is often more than twice as much as the original loan. For instance, on a \$200,000 mortgage at 7% for 30 years, the total amount paid at the end of the mortgage is \$479,000.

So, it is normal for you to attempt saving some of those extra \$270,000 you are paying. In this article, we’re going to see just how to save a good chunk of this money by paying off your mortgage early.

Divide Your Principal By Months Left To Pay

Without having a special payoff mortgage early type of calculator it is possible to get an idea what results paying extra principal with your payments will have on the overall cost of your mortgage. Start by dividing the principal you owe on your mortgage by the number of months left to pay the mortgage.

If your mortgage is the same as the one above where the principal is \$200,000, at 7 % interest and the term is 30 years, you would divide \$200,000 by 360. 360 is a number of payments paid over the course of 30 years. The answer is \$555.56. This is the average principal of each payment.

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So it stands to reason, if you pay an extra \$555.56 each month, you would pay off your mortgage in half the time. However there’s a catch, and it’s a good catch.

Extra Payments Compound

Just as any interest-bearing investment or loan has a compounding affect, so does an extra principal payment on a mortgage. Because of compounding, instead of paying off your 30 year mortgage in 15 years by adding \$555.56 to each payment, you’ll actually pay off your mortgage even sooner. In the case of this example, it will be paid off in 13 years and 10 months.