How long to pay off mortgage

What the loan payoff calculator is solving for

A repayment calculator takes a balance, a rate and a term, and returns the payment. This one takes a balance, a rate and a payment, and returns the term. It is the same amortisation formula with a different unknown.

That matters because the term on your loan documents and the repayment leaving your account often stopped matching years ago. A rate change, a repayment you rounded up, a period of paying extra: any of them and the contracted term is no longer the date your loan actually ends.

Use the balance from your most recent statement rather than the amount you originally borrowed, and the repayment currently leaving your account rather than the minimum. Those two figures are what make the answer yours.

Why the first period is almost all interest

Interest is charged on the balance, and the balance is never larger than it is right now. That makes the interest in your very first period the largest single interest charge of the whole loan, and the panel shows it for exactly that reason.

On $400,000 at 6%, the first month's interest is $2,000. If you are paying $2,800, then $2,000 of it is interest and $800 comes off the debt. Under a third of your money is doing anything to the balance.

The ratio flips, slowly at first and then quickly. At that repayment the principal portion does not overtake the interest portion until the 114th payment, nine and a half years in. By the final years almost the entire repayment is principal, which is why the last stretch of a loan disappears so much faster than the first.

The repayment that never clears the loan

There is a floor under every loan, and it is the interest charged in one period. Pay less than that and the balance grows. Pay exactly that and the balance never moves, no matter how many years you keep going.

On $400,000 at 6% the floor is $2,000 a month. Pay exactly $2,000 and you hand over $24,000 a year forever against a debt that stays at $400,000. Pay $2,100, a hundred dollars above the floor, and it does clear, in 50 years and 11 months, at a cost of $881,894 in interest.

What causes it in practice

• An interest only loan, where the repayment is designed to cover the interest and nothing else
• A line of credit or revolving facility, where the minimum is the interest charge
• A fixed direct debit set years ago that rate rises have since caught up with
• A repayment or rate typed into the calculator incorrectly, which is the most common cause by far

If the panel tells you the loan never clears, check the repayment field first and the rate second. If both are right, the loan is not amortising, and that is worth a conversation rather than another year of payments.

Why your loan term and your real payoff date differ

Your loan documents carry a contracted term, counted from settlement, on the assumption that you pay the scheduled amount and never a dollar more. It is a term of the contract, not a prediction.

The moment you pay anything extra, the two dates separate. The contracted term does not move, because nobody changed the contract. The real payoff date moves earlier, and statements will often keep quoting the contracted one anyway.

This calculator works from the second date. Current balance, current rate, current repayment: that is where your loan actually ends, and it is usually earlier than the paperwork suggests.

What another $100 a period does

The panel runs this because it is the cheapest question on the page, and the answer is consistently larger than people expect.

On $400,000 at 6% paying $2,800 a month, another $100 takes the payoff from 21 years down to 19 years and 7 months. Total interest falls from $303,300 to $280,338, and the total you repay across the whole loan drops from $703,300 to $680,338.

Notice the returns tail off. The first $400 a month, from $2,400 to $2,800, buys nine years, while the last $500, from $3,000 to $3,500, buys four years and three months. The early increases are the ones worth arguing about.

What the finish date assumes

The date on the panel holds only if everything you entered holds. It assumes the rate stays put for the entire remaining term, which no variable rate has ever done, and that the repayment continues unchanged the whole way.

• Rate changes in either direction, including a fixed rate rolling off
• Any redraw you take, which puts the balance and the interest back
• Offset balances, which reduce interest without changing the scheduled repayment
• Package, annual and transaction fees, which sit outside the loan repayment
• Repayment holidays, hardship arrangements or a switch to interest only

It is arithmetic on the figures you supplied, not an approval and not a statement from your lender. Our job as brokers, across a panel of more than 40 lenders under Australian Credit Licence 389083, is working out whether a different loan brings that date forward further than another $100 a month would. Often it does, and the $100 stays in your account.