Mortgage Prepayment Calculator

See exactly how much interest you save and how many months you cut by prepaying your mortgage.

🏠 Mortgage Prepayment Calculator
Remaining Balance$300,000
$
$10K$1M
Annual Interest Rate6.5%
%
0.5%15%
Remaining Term25 yrs
yrs
1 yr30 yrs
Lump-Sum Prepayment$20,000
$
$0$200K
Remaining Balance$300,000
$
$10K$1M
Annual Interest Rate6.5%
%
0.5%15%
Remaining Term25 yrs
yrs
1 yr30 yrs
Extra Monthly Payment$200
$
$0$2,000
Interest Saved
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Time Saved
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Monthly Payment
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Original Payoff
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New Payoff Date
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Original Total Cost
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New Total Cost
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Interest Saved
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Time Saved
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New Monthly Payment
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Original Payoff
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New Payoff Date
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Original Total Cost
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New Total Cost
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🏠 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 256 months instead of 300.
3
Months saved: 300 - 256 = 44 months (3 years, 8 months). Total interest under original schedule: approx $307,700. Total interest under new schedule: approx $237,900. Interest saved: approx $69,700.
Interest Saved = ~$69,700 | 3 years 8 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 159 months instead of 240.
3
Months saved: 240 - 159 = 81 months (6 years, 9 months). Interest saved: approx $108,200. The $50,000 prepayment avoids $108,200 in future interest over the life of the loan.
Interest Saved = ~$108,200 | 6 years 9 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)^360 / ((1.005)^360 - 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 272 months instead of 360.
3
Months saved: 360 - 272 = 88 months (7 years, 4 months). Interest saved: approx $132,000.
Interest Saved = ~$132,000 | 7 years 4 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.
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How much can I save by making a lump-sum prepayment on my mortgage?

The savings depend on your remaining balance, interest rate, and how large the prepayment is. For a $300,000 mortgage at 6.5% with 25 years remaining, a $20,000 lump-sum prepayment saves roughly $23,000 in interest and cuts about 14 months off the loan. The earlier in the loan term you prepay, the greater the savings because more future payments are interest-heavy.

What is the difference between a lump-sum prepayment and extra monthly payments?

A lump-sum prepayment is a one-time large payment applied directly to principal, such as using a tax refund or bonus. Extra monthly payments are smaller recurring additions to each monthly installment. Both reduce principal faster, but extra monthly payments compound continuously over time and can save more total interest if sustained for the full remaining term.

Does prepaying a mortgage reduce the monthly payment or the loan term?

In most cases, prepaying a mortgage reduces the loan term while keeping the monthly payment the same. Your lender applies the extra principal immediately, reducing the outstanding balance. Future interest accrues on a smaller balance, so more of each subsequent payment goes toward principal, paying off the loan earlier. Some lenders do allow recast requests that lower the monthly payment instead.

Is it better to prepay a mortgage or invest the money?

This depends on the after-tax mortgage interest rate versus the expected investment return. If your mortgage rate is 4% and your investment portfolio earns 8%, investing wins. If your mortgage rate is 7% and markets look uncertain, prepaying provides a guaranteed 7% risk-free return. Your personal risk tolerance, tax situation, and whether you have other high-interest debt also matter.

How does a mortgage prepayment affect my amortization schedule?

A lump-sum prepayment reduces the outstanding principal immediately. All future monthly payments use the new lower balance to calculate the interest portion, meaning a larger share of each subsequent payment chips away at principal. The result is fewer total payments required to reach a zero balance. The original monthly payment amount stays the same unless you formally request a recast.

What is a mortgage recast and how is it different from prepayment?

A prepayment reduces principal and shortens the loan term while keeping the same monthly payment. A recast (also called re-amortization) applies a lump sum to principal AND recalculates the monthly payment downward over the original remaining term. Recasts cost a small fee ($150-$500 typically) and require a minimum prepayment amount, but they lower your required monthly cash outlay.

Can I prepay a mortgage at any time?

Most conventional mortgages in the United States allow unlimited prepayment at any time with no penalty. However, some older fixed-rate loans and certain ARM products include prepayment penalty clauses, typically in the first 3-5 years of the loan. Always check your loan documents or call your servicer to confirm whether any prepayment restrictions apply before sending extra funds.

How do I make a lump-sum prepayment to my mortgage?

Contact your mortgage servicer before sending the payment to confirm how to designate it as a principal-only payment. Typically you write 'apply to principal only' on the check memo, or select 'principal reduction' in your online payment portal. If the funds are applied without that designation, the servicer may treat them as an advance on the next month's full payment, which does not reduce principal the same way.

Does prepaying a mortgage save on taxes if I itemize?

Prepaying principal reduces future interest charges, which in turn reduces your mortgage interest deduction if you itemize. For every dollar of interest you avoid paying the lender, you lose that dollar as a deduction. At a 22% marginal tax rate, each $1,000 of interest saved costs about $220 in lost deductions, making the effective after-tax interest rate lower than the stated rate. Run your specific numbers with a tax advisor.

How much extra should I pay each month to pay off my mortgage in 20 years instead of 30?

For a $400,000 mortgage at 6.5%, the regular 30-year payment is about $2,528/month. To pay it off in 20 years, you need about $2,980/month, meaning roughly $452 extra per month. The exact amount depends on your balance and rate. Enter your figures in the Extra Monthly tab of this calculator to find the precise extra payment needed for any target payoff date.

What happens if I pay one extra mortgage payment per year?

Making one extra full monthly payment per year is equivalent to making 13 monthly payments instead of 12. On a 30-year mortgage, this typically reduces the loan term by about 4-6 years and saves $20,000-$40,000 in interest on a $300,000 loan at current rates. The effect is largest in the first decade of the loan when the outstanding balance is highest.

Should I prepay my mortgage before retirement?

Entering retirement with a paid-off mortgage reduces fixed monthly expenses significantly, which lowers the amount you need to withdraw from investments each month. This can improve the longevity of your portfolio. However, if you have a low-rate mortgage locked in (below 4%) and a diversified portfolio earning more than that, the math may favor keeping the mortgage and staying invested.

📌 Quick Tips

💡Even a single lump-sum prepayment applied early in the loan life saves disproportionately more interest than one made near the end. The earlier you prepay, the longer the compounding effect works in your favor.
💡If you receive a year-end bonus, tax refund, or inheritance, applying even half of it to your mortgage principal can shave years off your loan and save tens of thousands of dollars.
💡Adding just $100-$200 per month extra to a 30-year mortgage typically cuts 3-5 years off the loan and saves $20,000-$40,000 in interest, depending on the balance and rate.
💡Before prepaying, check your mortgage agreement for prepayment penalties. Most modern mortgages allow unlimited prepayment, but some older fixed-rate loans charge a fee for early payoff.
💡Compare the interest rate on your mortgage to your expected investment return. If your mortgage rate is 7% and your index fund historically returns 10%, investing the surplus may create more wealth than prepaying.