Mortgage Prepayment Calculator
See exactly how much interest you save and how many months you cut by prepaying your mortgage.
🏠 What is a Mortgage Prepayment Calculator?
A mortgage prepayment calculator shows you exactly how much interest you save and how many years you cut from your loan by paying down principal faster than required. Whether you have a one-time windfall such as a tax refund, bonus, or inheritance, or you simply want to add a fixed extra amount to each monthly payment, prepaying reduces the outstanding principal immediately and slashes the interest that accrues on every future payment.
Most homeowners are surprised by how powerful even a modest prepayment can be. On a $300,000 mortgage at 6.5% with 25 years remaining, a single $20,000 lump-sum payment saves over $23,000 in future interest and cuts more than a year off the loan. That is a guaranteed, risk-free return of 6.5% on the prepayment amount, equivalent to the loan interest rate itself.
There are two common prepayment strategies. A lump-sum prepayment applies a one-time amount directly to principal, reducing the balance on which all future interest is calculated. An extra monthly payment approach adds a fixed sum to every scheduled payment, continuously accelerating principal paydown over the life of the loan. Both methods keep the regular monthly payment unchanged in most cases; the loan simply ends sooner. Some borrowers combine both, making a lump-sum prepayment and then adding a small monthly overpayment to maintain momentum.
This calculator handles both strategies. Enter your remaining balance, current interest rate, and remaining loan term, then specify either a lump-sum amount or a recurring extra monthly amount. The tool runs a full month-by-month amortization simulation to compute your exact interest savings, new payoff date, and total cost comparison, giving you the hard numbers needed to make an informed decision about your mortgage strategy.
📐 Formula
M = P × r(1+r)n ÷ [(1+r)n − 1]
M = regular monthly mortgage payment
P = outstanding principal balance
r = monthly interest rate (annual rate ÷ 12 ÷ 100)
n = remaining number of monthly payments
After lump sum L: new balance = P − L, amortized at same M and r
After extra monthly e: new payment = M + e, amortized at same P and r
Interest saved = total interest under original schedule − total interest under new schedule
Example: P = $300,000, r = 6.5% / 12 = 0.5417%, n = 300 months. M = $2,026/month. After $20,000 prepayment: new balance $280,000 amortized at same payment finishes in approximately 286 months, saving roughly 14 months and $23,000 in interest.
📖 How to Use This Calculator
Steps
1
Enter your current mortgage balance - Type the outstanding principal balance from your most recent mortgage statement. This is not the original loan amount; it is the amount you still owe today.
2
Enter your interest rate and remaining term - Input your annual interest rate as a percentage (e.g., 6.5 for 6.5%) and how many years remain on your loan. If you took a 30-year mortgage 5 years ago, enter 25 years.
3
Choose your prepayment type and amount - Select the Lump Sum tab for a one-time payment (e.g., a tax refund or bonus) or the Extra Monthly tab for a recurring monthly addition. Enter the amount in the field provided.
4
Click Calculate and review your savings - The results show your total interest saved, months or years cut from the loan, your new payoff date, and the full original vs new total cost comparison.
💡 Example Calculations
Example 1 - $20,000 tax refund on a $300,000 mortgage
$300,000 balance, 6.5% rate, 25 years remaining, $20,000 lump-sum prepayment
1
Monthly rate r = 6.5 / 12 / 100 = 0.5417%. Regular monthly payment M = $300,000 x 0.5417% x (1.005417)^300 / ((1.005417)^300 - 1) = approx $2,026/month.
2
After a $20,000 lump-sum prepayment the new balance drops to $280,000. Simulating month-by-month at the same $2,026 payment, the loan pays off in approximately 286 months instead of 300.
3
Months saved: 300 - 286 = 14 months. Total interest under original schedule: approx $307,700. Total interest under new schedule: approx $284,200. Interest saved: approx $23,500.
Interest Saved = ~$23,500 | 14 months shorter payoff
Try this example →Example 2 - $50,000 inheritance on a $250,000 mortgage
$250,000 balance, 7% rate, 20 years remaining, $50,000 lump-sum prepayment
1
Monthly rate r = 7 / 12 / 100 = 0.5833%. Regular monthly payment M = $250,000 x 0.5833% x (1.005833)^240 / ((1.005833)^240 - 1) = approx $1,938/month.
2
After a $50,000 lump-sum prepayment the new balance drops to $200,000. At the same $1,938 monthly payment the loan now finishes in approximately 188 months instead of 240.
3
Months saved: 240 - 188 = 52 months (4 years 4 months). Interest saved: approx $59,000. The $50,000 prepayment effectively returns $59,000 in avoided interest, a 18% return on the prepaid amount over the life of the loan.
Interest Saved = ~$59,000 | 4 years 4 months shorter payoff
Try this example →Example 3 - $300 extra per month on a $400,000 mortgage
$400,000 balance, 6% rate, 28 years remaining, $300 extra per month
1
Monthly rate r = 6 / 12 / 100 = 0.5%. Regular monthly payment M = $400,000 x 0.5% x (1.005)^336 / ((1.005)^336 - 1) = approx $2,398/month.
2
With an extra $300/month the new effective payment is $2,698/month. Simulating month-by-month, the loan pays off in approximately 274 months instead of 336.
3
Months saved: 336 - 274 = 62 months (5 years 2 months). Interest saved: approx $63,000. The extra $300/month costs an additional $82,200 in total payments but avoids $63,000 in interest, a very strong return.
Interest Saved = ~$63,000 | 5 years 2 months shorter payoff
Try this example →❓ Frequently Asked Questions
How much interest do I save by prepaying my mortgage?
It depends on your remaining balance, interest rate, and prepayment size. On a $300,000 mortgage at 6.5% with 25 years left, a $20,000 lump-sum prepayment saves roughly $23,500 in total interest and cuts 14 months from the loan. A $50,000 prepayment on the same loan saves over $55,000. The earlier in the loan term you prepay, the larger the savings because more of each future payment would have been interest.
Does prepaying a mortgage reduce monthly payments or shorten the loan?
In most cases prepaying shortens the loan term while keeping the monthly payment unchanged. Your lender applies the extra principal immediately, reducing the balance on which future interest accrues. Because more of each subsequent payment goes to principal, the loan ends earlier. If you want a lower monthly payment instead, you can formally request a mortgage recast for a small fee, which re-amortizes the reduced balance over the original remaining term.
What is the best time during the month to make a mortgage prepayment?
Mortgage interest typically accrues daily on the outstanding balance. Making your prepayment as early in the month as possible, ideally right after the servicer processes your regular payment, minimizes the number of days the higher balance accrues interest. Always confirm with your servicer that the payment is labeled "principal only" so it is not treated as an advance regular payment, which would be applied to both interest and principal in the normal proportions.
Are there penalties for prepaying a mortgage?
Most modern US conventional mortgages (Fannie Mae and Freddie Mac backed) allow unlimited prepayment with no penalty. FHA, VA, and USDA loans also prohibit prepayment penalties. Some older fixed-rate loans and certain non-conforming or jumbo products may include a prepayment penalty clause for the first 3-5 years. Check your loan documents or call your servicer before making a large prepayment to confirm no fee applies.
Should I prepay my mortgage or invest the money instead?
Compare your after-tax mortgage rate to your expected after-tax investment return. Prepaying a 7% mortgage is equivalent to a guaranteed 7% return. If your investment portfolio reliably returns more than 7% after tax, investing may build more wealth over time. If you are in a low-interest environment (mortgage below 4%), the math typically favors investing. Personal factors like job security, risk tolerance, and peace of mind also matter. Many financial planners suggest a hybrid approach: invest in tax-advantaged accounts first, then prepay any surplus.
How do I designate a payment as principal-only?
Log in to your servicer's online payment portal and look for a "principal-only payment" option separate from the regular monthly payment. If paying by check, write "apply to principal only" on the memo line. For ACH or wire transfers, contact your servicer in advance to confirm the correct account or code to use. If you simply send extra money without a designation, some servicers will apply it as a prepaid future installment rather than a pure principal reduction, which is less effective.
What is a mortgage recast and when should I use it?
A mortgage recast (re-amortization) is when your lender applies a large lump-sum payment to the principal and then recalculates your monthly payment downward for the remaining original term. Unlike prepayment, a recast lowers your required monthly cash outlay. Recasts typically cost $150-$500 and require a minimum prepayment (often $10,000+). They make sense when your primary goal is to reduce monthly expenses rather than pay off the loan early, such as when approaching retirement or after a windfall that you want to convert into lower required monthly payments.
How much extra should I pay each month to pay off a 30-year mortgage in 15 years?
For a $400,000 mortgage at 6.5%, the 30-year payment is about $2,528/month. The 15-year payment for the same loan is about $3,486/month, meaning you need to pay roughly $958 extra per month to match a 15-year schedule. The exact amount depends on your current balance and rate. Use the Extra Monthly tab in this calculator to find the precise extra payment for any specific scenario by comparing payoff dates.
Does making biweekly payments work like a prepayment?
Yes. Paying half your monthly payment every two weeks results in 26 half-payments per year, equivalent to 13 full monthly payments instead of 12. That one extra payment per year applies entirely to principal, working like a small annual lump-sum prepayment. On a 30-year mortgage this typically cuts 4-6 years off the loan. However, make sure your servicer correctly processes biweekly payments as they arrive rather than holding them until month-end.
Is mortgage prepayment affected by whether I have a fixed or adjustable rate?
Prepayment works the same mechanically for both fixed and adjustable-rate mortgages (ARMs). However, the urgency is different. With a fixed rate you have certainty about future savings. With an ARM, if rates are expected to adjust upward significantly at the next adjustment date, prepaying before that date locks in savings at the current lower rate. Conversely, if rates are falling and your ARM is about to reset lower, waiting to prepay preserves the option to refinance to a lower fixed rate first.
Can I make a partial prepayment on an FHA or VA loan?
Yes. FHA and VA loans explicitly prohibit prepayment penalties by regulation, so you can make any extra principal payment at any time. For FHA loans, an important note is that annual MIP does not cancel automatically based on prepayment alone; you still need to meet the servicer's LTV and seasoning requirements or refinance into a conventional loan to remove MIP once your equity reaches 20%. Prepayment does accelerate reaching those thresholds sooner.
How does mortgage prepayment affect my tax deduction?
Prepaying reduces future interest charges. If you itemize deductions, this also reduces the mortgage interest deduction you can claim. For every $1,000 of interest avoided, you lose $1,000 as a deduction. At a 22% marginal tax rate the effective after-tax cost of that $1,000 interest was only $780 (1,000 x (1 - 0.22)). So the effective after-tax rate on your mortgage is lower than the stated rate. Adjust your savings estimate accordingly, and consult a tax advisor for your specific situation.