Extra Payment Impact Calculator

Purpose and model boundary

Use this to price two different ways of paying a debt off sooner, and to keep them apart: a recurring extra every month, and a single lump sum. Each is run as its own full schedule beside the debt as it stands, and then both together, with the months and the interest each one saves. It also reports the rate the money earns by going to the debt, which is the debt's own rate.

It prices what paying early does to one debt. It does not compare that against investing the money instead, and it does not model an early repayment charge, which some lenders apply and which can take back much of the saving.

Inputs and units

Governing relationships

The scheduled payment is the level amount that clears the balance at the given rate over the months remaining. It is worked out here rather than entered, so it is the payment your remaining term implies; if it differs from what you actually pay, then the balance, the rate or the count of months left is not what you thought.

Every schedule is followed month by month. Each month is charged one twelfth of the annual rate on the balance standing at the start of that month, the scheduled payment is applied, and any extra goes entirely to the balance, because the month's interest has already been covered.

A lump sum removes principal once and then saves the rate on that principal for whatever the debt had left to run. A recurring extra keeps removing principal, so each month's extra also reduces the balance the next month's interest is charged on, and its effect compounds.

The rate the money earns by going to the debt is the debt's own rate, because a unit of principal retired early stops accruing at that rate for the rest of the term. No other assumption is needed to say so.

Calculation sequence

This is the order in which the reported figures depend on one another, each step traceable to what the calculator says a figure is built from. It is not a claim about the order in which the workbook evaluates its own cells.

1. Work out the level payment that clears the balance at this rate over the months remaining.
2. Run that schedule with nothing added, to get the months it takes and all the interest still to be paid. Every saving below is measured against this.
3. Run it again with the recurring extra added to every payment, to get the months and the interest on that path.
4. Run it again with the lump sum landing in the month you chose and nothing else changed.
5. Run it a fourth time with both the recurring extra and the lump sum, because the two interact: whichever comes first shortens the debt the other then works on.
6. Subtract each path's months and interest from the baseline to get what that decision saves.
7. Report the rate on the debt itself as what the money earns by being paid against it.
8. Rerun the recurring extra comparison across a grid of extra payments and rates, so the diminishing return is visible rather than asserted.

Outputs and interpretation

Model Status reads OK, or explains why the inputs do not describe a debt this model can answer, or why an answer that did compute deserves a second look.

The calculator also returns a grid that reruns the recurring extra comparison across a range of extra payments and rates at once. Its axes, corner and body arrive as separate values and are the grid's parts rather than results to read on their own; the page assembles them into the table.

Every figure above is returned by the model. The page arranges and formats them; it computes none of them.

Validation and status logic

These are the states the delivery's own recorded runs exercise, so the table records what this calculator has been observed to return rather than every branch it could take. A figure that moves with the inputs is shown as ….

Assumptions and limitations

• Interest is charged once a month, at the annual rate divided by twelve, on the balance at the start of the month.
• The scheduled payment is implied by the balance, the rate and the months remaining. A lender whose payment differs from it is charging on a different basis, or the three figures entered are not the current ones.
• An early repayment charge, where one applies, is not modelled. It can take back a large part of the saving reported here, and it is the first thing to check on a mortgage or a fixed personal loan.
• Nothing is added to the debt after today, and no fee is modelled.
• The rate on the debt is held constant for the whole schedule. A variable rate debt will not behave this way.
• The rate the money earns by going to the debt is a fact about this debt, not a recommendation to pay it down rather than do something else with the money.

Restrictions and non-computing states

This calculator enforces the numeric limits recorded above before any schedule is run, so a value outside them is refused rather than answered.

There has to be a balance and at least one month left. A debt already paid off has nothing for an extra payment to save, and a term of nothing has no payment for a saving to be measured against.

The three optional fields may be left blank. A blank lump sum month is read as the first month rather than as nothing, which is the earliest and therefore the most favourable case.

Every schedule is followed for a limited number of months. Where a balance is still owing at the end of that window, the run stops there and the status line says the figures describe the window rather than the whole payoff.

Errors and warnings

NOT VALID means the inputs do not describe a debt this calculator can answer, and the figures beside it should not be relied on. CHECK is not an error: the arithmetic is sound and the figures stand, but something about the combination is worth knowing first, such as a lump sum arriving after the debt would already have gone. The status is shown with the results rather than in place of them, so a flagged answer is still a readable one.

A value the page itself refuses, because it falls outside the limits above, is rejected before the calculation is requested and no figures are returned at all. That is different again from a transport or service failure, where the page reports that the result could not be fetched rather than showing a stale or partial one.

The periodic payment formula used here, and the convention of dividing a stated annual rate by twelve to reach a monthly one, are set out in the Wikipedia entry on the amortization calculator.

How a level payment splits between interest and principal, with most of each early payment going to interest and more of it to principal as the balance falls, is explained by the Consumer Financial Protection Bureau in How does paying down a mortgage work?

These sources provide background; they do not supply the calculator's assumptions or certify its result. This calculator is informational and is not financial, investment, or tax advice. The rate the money earns by going to the debt is a fact about that debt, not a recommendation about what else you might do with it, and an early repayment charge, where one applies, is not modelled here.