Early loan payoff savings depend on 3 key factors: (1) Interest Rate - Higher rate = bigger savings.

Example: $300,000 mortgage at 7% for 30 years has $418,527 total interest.

Pay extra $500/month and save $184,314 interest plus payoff 12.5 years early. (2) Loan Term Remaining - Early payments save more because principal balance is largest in the first 1/3 of the loan term. (3) Extra Payment Strategy - Monthly extra vs lump sum.

Combined approach of $10k lump sum plus $200/month extra can save $94,187 on a $200k mortgage.

Compare your mortgage rate to expected investment returns.

If your mortgage rate is below 5% and you can invest at 7-10% (S&P 500 historical average), investing may be better.

Example: 3.5% mortgage, invest $500/month at 8% return for 20 years = $295,000 portfolio vs $89,000 mortgage interest saved.

However, paying off debt provides guaranteed returns equal to your interest rate, while investments carry risk.

Consider your risk tolerance and emergency fund status.

Both strategies work, but combining them is most effective.

Monthly extra payments ($200/month on a $200k mortgage at 6.5%) save $67,423 and payoff 6.5 years early.

A one-time $10,000 lump sum saves $38,764 and payoff 3.2 years early.

Combined strategy saves $94,187 and payoff 8.7 years early.

Make extra payments as early as possible in the loan term for maximum impact since more of your payment goes to interest early on.

Most modern mortgages and auto loans do not have prepayment penalties, but always check your loan agreement.

Federal law prohibits prepayment penalties on FHA, VA, and USDA loans.

Some conventional mortgages may have soft prepayment penalties (only if you refinance within 2-3 years) or hard penalties (any early payoff).

Student loans typically have no prepayment penalties.

If your loan has a penalty, calculate whether the interest savings still exceed the penalty cost.

Use the debt avalanche method: pay off highest interest rate first.

Typical 2025 rates: Credit cards 20-25%, Personal loans 10-15%, Auto loans 6-9%, Student loans 5-8%, Mortgages 6-8%.

Exception: If you need motivation, the debt snowball method (smallest balance first) provides psychological wins.

Also consider: tax-deductible interest (mortgage, student loans) is effectively lower cost, and employer 401k match (100% return) beats any debt payoff.

Use this formula: Each extra payment reduces principal, which reduces future interest.

For a $250,000 mortgage at 6.5% with $1,800 monthly payment, adding $300 extra monthly reduces the term from 259 months to 192 months (67 months or 5.6 years saved).

The calculator shows your new payoff date, total interest saved, and months saved.

Key insight: Extra payments have the biggest impact early in the loan when the principal balance is highest.