💵 Mortgage Prepayment Calculator
Calculate impact of one-time prepayment on your mortgage
One-time prepayment amount
Month when prepayment is made (e.g., 12 = after 1 year)
How to Use This Calculator
Enter Loan Details
Input your loan amount, interest rate, and loan term.
Enter Prepayment Details
Input the prepayment amount and the month when you plan to make the prepayment (e.g., month 12 = after 1 year).
Review Prepayment Impact
See how much interest you'll save and how much time you'll shave off your mortgage with the prepayment.
Formula
Remaining Balance After Prepayment = Balance at Prepayment Month - Prepayment Amount
New Payment = Recalculated based on new balance and remaining term
Interest Saved = Original Total Interest - New Total Interest
Example: $10,000 Prepayment After 1 Year
Loan: $300,000 at 4.5% for 30 years
Original Payment: $1,520.06/month
Balance after 12 months: ~$293,000
Prepayment: $10,000
New Balance: $283,000
Interest Saved: ~$15,000+
Time Saved: ~1 year
About Mortgage Prepayment Calculator
The Mortgage Prepayment Calculator is a valuable tool for homeowners who want to understand the impact of making a one-time prepayment on their mortgage. A prepayment is a lump sum payment made toward your principal balance, which reduces your outstanding loan amount and can significantly reduce the total interest you pay over the life of the loan. This calculator helps you see exactly how much interest you'll save and how much time you'll shave off your mortgage by making a prepayment at a specific point in your loan term.
Making prepayments can be an effective strategy for reducing mortgage costs, especially when you receive a bonus, tax refund, inheritance, or other lump sum of money. Prepayments are particularly valuable when made early in the loan term because they reduce the principal balance when it's highest, saving the most interest over time. However, the impact of a prepayment depends on when it's made - prepayments made earlier in the loan term have a greater impact than those made later.
This calculator shows you the impact of a one-time prepayment by calculating your remaining balance after the prepayment, recalculating your payment schedule, and showing you the interest savings and time reduction. Understanding these benefits helps you make informed decisions about whether to use a windfall to prepay your mortgage or invest it elsewhere. The calculator is particularly useful for planning how to use bonuses, tax refunds, or other lump sum payments to reduce your mortgage costs.
When to Use This Calculator
- Windfall Planning: Evaluate using bonuses or tax refunds for prepayment
- Prepayment Timing: Determine the best time to make a prepayment
- Savings Analysis: Calculate interest savings from prepayments
- Financial Planning: Plan how to use lump sum payments
- Goal Setting: Set prepayment goals to reduce mortgage costs
- Investment Comparison: Compare prepayment returns to other investments
Why Use Our Calculator?
- ✅ Prepayment Impact: See exact savings from prepayments
- ✅ Timing Analysis: Understand impact of prepayment timing
- ✅ Accurate Calculations: Precise interest and time savings
- ✅ Free Tool: No registration or fees required
- ✅ Financial Planning: Helps plan prepayment strategies
- ✅ Mobile Friendly: Calculate on any device
Understanding Mortgage Prepayments
A mortgage prepayment is a lump sum payment made toward your principal balance, separate from your regular monthly payment. Prepayments reduce your outstanding balance immediately, which means less interest accrues each month going forward. This creates a compounding effect where the prepayment saves interest not just in the current month, but for all remaining months of the loan.
The impact of a prepayment depends on when it's made. Prepayments made early in the loan term have the greatest impact because they reduce the principal balance when it's highest, saving interest for the longest period. Prepayments made later in the loan term have less impact because the balance is lower and there are fewer months remaining. However, any prepayment saves interest and reduces your loan term, making it a valuable strategy for reducing mortgage costs.
Real-World Applications
Tax Refund Prepayment: A homeowner receives a $5,000 tax refund and considers prepaying their $300,000 mortgage. Making the prepayment in month 12 saves approximately $7,500 in interest and reduces the loan term by 8 months, making it a good use of the refund.
Bonus Prepayment: A homeowner receives a $15,000 bonus and prepays their mortgage in month 24. This saves $20,000+ in interest and reduces the loan term by 2 years, significantly accelerating their path to debt-free homeownership.
Inheritance Prepayment: A homeowner receives an inheritance and wants to use $25,000 to prepay their mortgage. The calculator shows this saves $35,000+ in interest and reduces the loan term by 3+ years, helping them achieve financial freedom sooner.
Important Considerations
- Prepayments are most effective when made early in the loan term
- Ensure prepayments are applied to principal, not future payments
- Some loans have prepayment limits or penalties - check your loan terms
- Consider your overall financial situation before making prepayments
- Compare prepayment returns to other investment opportunities
- Maintain emergency funds and retirement savings alongside prepayments
Frequently Asked Questions
What is a mortgage prepayment?
A mortgage prepayment is a lump sum payment made toward your principal balance, separate from your regular monthly payment. Prepayments reduce your outstanding balance immediately, which reduces the interest you pay over the remaining life of the loan and can shorten your loan term.
When is the best time to make a prepayment?
Prepayments are most effective when made early in the loan term because they reduce the principal balance when it's highest, saving interest for the longest period. However, any prepayment saves interest and reduces your loan term, so the best time is whenever you have the funds available and it makes financial sense for your situation.
How much interest can I save with a prepayment?
Interest savings depend on your loan amount, interest rate, when you make the prepayment, and the prepayment amount. Generally, prepayments can save significant interest - often more than the prepayment amount itself over the life of the loan. Use this calculator to see exact savings for your situation.
Should I make a prepayment or invest the money?
This depends on your interest rate, investment returns, and financial goals. If your mortgage rate is high (e.g., 6%+), prepaying may provide better guaranteed returns than conservative investments. If your rate is low (e.g., 3-4%), investing may provide better returns, but prepayments offer guaranteed, risk-free returns. Consider your risk tolerance and financial situation.
Are there prepayment limits or penalties?
Some loans have prepayment limits (e.g., you can only prepay a certain percentage per year) or prepayment penalties (fees for paying off early). Most modern mortgages don't have these restrictions, but always check your loan documents. Prepayment penalties are typically only in effect for the first few years of the loan.
How do I ensure my prepayment goes to principal?
When making a prepayment, specify that it should be applied to principal, not future payments. Contact your lender to confirm their process - some require written instructions, while others have online options. Verify on your next statement that the principal balance decreased by your prepayment amount.