How extra principal shortens a mortgage
A fixed-rate mortgage charges interest on whatever you still owe. When you send an extra dollar and it is applied to principal, the balance drops permanently and every future interest charge is computed on the smaller number. The regular payment does not change, so the whole extra amount plus the interest it saves goes to knocking down the loan faster. The effect compounds, which is why modest extra payments can remove years from a 30-year loan.
The tool first rebuilds your scheduled payment from the balance, rate and months remaining using the standard amortization formula. It then runs two month-by-month schedules: one as written, one with your extra monthly amount and any lump sum applied immediately. The difference in the number of payments is the time saved, and the difference in accumulated interest is the money saved.
A worked example
Suppose you owe $280,000 at 6.5% with 300 payments (25 years) left. The scheduled principal-and-interest payment is $1,890.58, and if you simply pay it you will hand the lender about $287,174 in interest before the loan is gone.
Now add $200 a month. The payoff moves from 300 months to 240 months - five years earlier - and total interest falls to roughly $220,280. You save close to $66,900 in interest by putting in $48,000 of extra principal. A $10,000 lump sum today instead, with no monthly extra, would cut 25 months and roughly $37,300 of interest, because the lump lands while the balance is still large.
Before you prepay
Make sure the money is applied correctly. Servicers sometimes treat extra funds as a prepaid next payment rather than a principal reduction, which does nothing for the payoff date. Send the extra as a separate principal-only payment or use the principal box in your servicer's portal, then check that the balance dropped on the next statement.
Weigh the alternatives honestly. Paying down a 6.5% mortgage is a guaranteed 6.5% return, which beats most savings accounts but may lose to an employer 401(k) match, and it sits behind high-interest credit card debt and a basic emergency fund in priority. Mortgage interest is also deductible if you itemize, which trims the effective rate for some households, though most filers now take the standard deduction. Finally, money in your house is illiquid - you cannot spend equity without a sale or a new loan.
Check the note for a prepayment penalty. Qualified mortgages originated since 2014 generally cannot carry one, but older loans, some portfolio loans and many auto loans still do.