The Math Behind Mortgage Payment Calculators

We love math because it’s precise. You can know exactly how much is coming in, how much is going out, and where you’re on track to end up in 10 years.

Our goal is to transparently educate people about how they can best approach wealth building through the two biggest assets they own: their health and their home. We believe that you should always do your own due diligence before making a significant financial decision.

Consequently, every recommendation we make on this site is rooted in cold, hard math. 

We use calculators to show you how much you’ll pay in interest over the course of your loan, how much you can save by paying more each month, what it takes to pay off your mortgage early, and the pros and cons of using life insurance to speed your journey to financial freedom and security.

You don’t have to take our word for anything—just run the numbers yourself and do what’s best for your family!

For those interested in where we get our numbers, the following is a breakdown of the behind-the-scenes calculations. You can verify our results yourself with a spreadsheet and a few formulas. 

Calculating Interest On Your Loan

Step 1: Divide the interest rate on your loan by 12. Mortgage interest typically accrues monthly with the yearly interest rate being 4.5%, 3%, or whatever your contract specifies. Dividing this number by 12 gives you the percent of remaining principal you need to pay each month.

Step 2: Multiply the monthly interest rate by your remaining principal. This is how much you will pay to interest alone this month.

Step 3: Subtract the value from Step 2 from your monthly payment. This is the amount of your payment that will go against your principal.

Step 4. Subtract the value from Step 2 from your principal. This is how much of your mortgage you have left to pay after this month’s payment. 

Step 5. Repeat steps 2-4 (in a spreadsheet) until your principal reaches zero. Just like that, you’ve created an amortization table!

Step 6. Sum up the interest payments. This is how much you’ll pay in interest from now until your house is paid off.

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Alternatively, if you know how many months you have left on your mortgage, just multiply your house payment by the number of months and subtract off the principal you still owe today. 

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Calculating Interest Savings by Paying Extra

Step 1: Calculate the total interest you’re already on track to pay (see “Calculating Interest on Your Loan” above).

Step 2: Calculate the total interest you’ll pay if you make extra payments. Repeat Step 1 but increase your monthly payment by however much you want to pay extra (e.g., $400). 

Step 3: Subtract the value from Step 2 from the value from Step 1. This difference is what you’ll save.

Calculating How Much Extra You Need to Pay to Get Your Mortgage Paid Off by a Specified Date

Calculating your target extra payment requires trial and error. You can get a sense for how much you need to pay by plugging in different amounts into your spreadsheet and counting the months until your principal goes to zero.

Our Target Payment Calculator does the same thing, but a million times faster. It marginally adjusts the monthly payment until the time until your mortgage is paid off and your target timeframe are equal. 

Calculating Your Mortgage Payoff Timeline with Life Insurance

The idea behind using a life insurance policy to pay off your mortgage (without dying) is to pay into your policy until the “cash value” (which grows tax-free, by the way) is equal to the remaining principal on your mortgage. You can then pull that money out and wipe out your mortgage in one fell swoop, saving yourself as much as $100k in interest!

How long it takes for your cash value to grow depends on (1) how much you put in and (2) how high your premium is. The premium is determined by your age, health habits, and actuarial data on the population. Insurance companies have entire teams devoted to setting these premiums, so rather than trying to give you a rough estimate here on the website, our team get real quotes from insurance companies based on your information. We then use those numbers to calculate exactly how long it will take you to pay off your mortgage with the help of life insurance versus paying extra to the bank each month.

Note: This only works with certain forms of “whole life” insurance. Chat with one of our advisors to get a custom report on how what policy to look for and what your unique payoff timeline would be.

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At the Mortgage Freedom Center, we help homeowners find peace of mind by getting out of debt, protecting their family finances, and investing for the future with maximum efficiency.

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