You may have heard that if you add a little bit to every loan payment, you will pay it off early. Truth! Think about it - if you owe someone $100 at 12%, you're paying $1 a month worth of interest. If you reduce the loan by $100, you don't just save $1... you save $1 every month for the entire life of the loan. That can add up fast.
| Basic Payments: | |
| New Payment: | |
| Months Saved: | |
| Money Saved: | |
| Years remaining: |
Here is how you'd do this in your own spreadsheet.
First, find out the basic payment required for your loan amount. I calculate this, rather than ask people what they are paying, because people often don't know how much of a monthly payment is going towards their loan. With mortgages, there is insurance and taxes added on, so this strips all of those things out. We use the pmt function for this:
=pmt(rate, number of payments, present value)
=pmt([rate]/12,[years]*12,-[loan amount])
Then use the nper function to find out the number of
=nper(rate, payment, loan amount)
=nper([rate]/12,[payment + extra],-[loan amount])/12
The last division by 12 is to find out how many years you're paying. Have fun!
I am so glad that I found a similar calculator fairly early on in my mortgage - once I plugged numbers into it - it was astonishing how much interest I could see that I would save, if I paid even a little bit extra - and how many months/years dropped off my mortgage timeline. One thing that I realized - although I wish I'd known this right at the start, instead of a year in - is that when you break out your payment into principal and interest - at the start of your mortgage, your payment is heavily weighted toward interest - so my initial thought was that paying more wouldn't really do much? But the opposite is true! If your payment is $500 and $400 of that is interest, and $100 is principle - that means that every additional $100 you can pay - goes directly to principle and knocks out a whole month off your mortgage term - as well as knocking out $400 of interest off the total (ish - but it's close). Whereas at the end of the term, when your payment is $400 of principle and $100 of interest - you only knock off 1/4 of a month with an additional payment of $100/month. So it's best to start RIGHT AWAY to throw extra money at your mortgage, if you can!
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