Mortgage Compound Interest Calculator 2025: See Your Real Costs
Did you know? On a $400,000 mortgage at 6.5%, you'll pay $502,000 in interest alone over 30 years. That's more than the original loan! Understand how compound interest works and see how much you can save by paying faster.
Calculate Your Total Interest Cost
See exactly how much interest you'll pay over the life of your loan. Compare loan terms and find ways to save thousands.
Compare Loan Terms →How Compound Interest Works on Mortgages
Compound interest is when interest is calculated on both the principal AND the accumulated interest. On mortgages, this means you pay interest on your interest — which adds up fast.
📊 How Mortgage Payments Work
Each monthly payment goes toward both principal and interest. Early payments are mostly interest, later payments mostly principal.
- Year 1: ~80% interest, 20% principal
- Year 15: ~50% interest, 50% principal
- Year 30: ~5% interest, 95% principal
This is why paying extra principal early saves so much money. Find a lender that allows extra principal payments without penalties. Calculate your payment to see how much you can pay extra each month.
Real Examples: How Much Interest Will You Pay?
Let's look at real numbers to understand the impact of compound interest:
💰 Example 1: $400K at 6.5% (30-year)
- Loan amount: $400,000
- Interest rate: 6.5%
- Monthly payment: $2,528
- Total paid over 30 years: $910,000
- Total interest: $510,000
- Interest as % of loan: 127%
Wow! You'll pay $510,000 in interest — more than the original $400,000 loan!
💰 Example 2: $400K at 6.5% (15-year)
- Loan amount: $400,000
- Interest rate: 6.5%
- Monthly payment: $3,387
- Total paid over 15 years: $609,660
- Total interest: $209,660
- Interest as % of loan: 52%
Savings: $300,340 less in interest by paying off in 15 years instead of 30!
💰 Example 3: $400K at 6.5% (30-year with extra $200/month)
- Loan amount: $400,000
- Interest rate: 6.5%
- Monthly payment: $2,728 ($2,528 + $200 extra)
- Loan paid off in: 23 years
- Total interest: $370,000
- Interest savings: $140,000
Power of extra payments: Just $200/month saves $140,000 in interest and pays off 7 years early!
Compare loan terms to find the best rate and payoff strategy for your situation.
15-Year vs 30-Year Mortgage: Which Saves More?
The choice between 15-year and 30-year mortgages depends on your budget and goals. Let's compare:
| Factor | 15-Year | 30-Year |
|---|---|---|
| Monthly Payment | $3,387 | $2,528 |
| Total Interest | $209,660 | $510,000 |
| Interest Savings | — | $300,340 MORE |
| Loan Paid Off | 15 years | 30 years |
| Monthly Budget Impact | $859 higher | Baseline |
| Best For | High income, save money | Lower budget, flexibility |
💡 Smart Strategy: Hybrid Approach
Get a 30-year mortgage for flexibility, then pay extra when you can. This gives you the best of both worlds:
- Lower monthly payment ($2,528) for cash flow flexibility
- Pay extra when you have bonus/tax refund/raise
- Still pay off in 20-25 years with extra payments
- Save $100K-$200K in interest vs full 30 years
Find a lender that allows extra principal payments without penalties. See how this strategy builds your net worth faster.
7 Ways to Save on Mortgage Interest
1️⃣ Pay Extra Principal Monthly
Add $100-$500/month to principal. This goes directly to reducing your balance and saves thousands in interest.
Example: Extra $200/month saves $140,000 in interest!
2️⃣ Make Bi-Weekly Payments
Pay half your monthly payment every 2 weeks. This results in 26 payments/year instead of 24, paying off your loan faster.
Savings: 4-5 years faster payoff, $50K-$100K in interest saved.
3️⃣ Get a Lower Interest Rate
Even 0.5% lower rate saves huge money. Compare lenders to find the best rate.
Example: 6.5% vs 6.0% on $400K = $60,000 savings over 30 years.
4️⃣ Refinance When Rates Drop
If rates drop 0.75-1%, refinancing saves money. Check refinance rates periodically.
Savings: $100-$200/month, paid back in 2-3 years.
5️⃣ Choose a 15-Year Mortgage
If you can afford it, 15-year mortgages save $300K+ in interest compared to 30-year.
Tradeoff: Higher monthly payment ($859/month more in our example).
6️⃣ Buy Discount Points
Pay upfront to lower your rate. 1 point = 1% of loan amount, typically lowers rate 0.25%.
Example: $4,000 upfront saves $60/month = paid back in 67 months.
7️⃣ Increase Down Payment
Larger down payment = smaller loan = less interest. Plus, avoid PMI at 20% down.
Example: 20% down vs 5% down saves $50K+ in interest + PMI.
Compare lenders to find the best rate and terms for your situation.
Your Action Plan: Minimize Interest Costs
- Calculate your costs: Use our calculator above to see total interest for 15-year vs 30-year.
- Compare lenders: Get quotes from 3-5 lenders to find the best rate.
- Choose your strategy: 15-year, 30-year, or hybrid approach with extra payments.
- Verify no prepayment penalties: Make sure your lender allows extra principal payments without penalties.
- Get pre-approved: Get pre-approved and lock in your rate.
Ready to Minimize Your Interest Costs?
Understanding compound interest is the first step. Now compare lenders to find the best rate and terms.
Compare Lenders Now →Frequently Asked Questions
How is mortgage interest calculated?
Mortgage interest is calculated monthly on the remaining balance. Each payment reduces the principal, so the interest portion decreases over time. Early payments are mostly interest, later payments mostly principal.
Can I pay off my mortgage early without penalties?
Most mortgages allow early payoff without penalties. However, some loans have prepayment penalties in the first 3-5 years. Always ask your lender about prepayment penalties before signing.
How much can I save by paying extra principal?
Extra principal payments go directly to reducing your balance, saving interest immediately. Even $100/month extra can save $50K+ in interest over the life of the loan.
Is a 15-year or 30-year mortgage better?
15-year mortgages save more interest but have higher monthly payments. 30-year mortgages offer lower payments and flexibility. Choose based on your budget and goals. A hybrid approach (30-year with extra payments) often works best.
What's the best way to minimize interest costs?
The best strategy combines: (1) getting the lowest rate possible, (2) making extra principal payments, (3) refinancing when rates drop, and (4) choosing the right loan term for your situation.
Should I refinance if rates drop?
Refinancing makes sense if you can save 0.75-1% on your rate and plan to stay in the home long enough to recover closing costs (typically 2-3 years). Use a refinance calculator to determine your break-even point.