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Loan Prepayment Calculator (Extra Payments & Lump Sum)

Every extra dollar you put toward loan principal — a recurring extra monthly payment, a one-time lump sum, or both — cancels interest you haven't been charged yet. With a lump sum there are two paths: keep your current monthly payment and pay the loan off years early, or ask the servicer to recast the loan, keeping the original end date with a smaller payment. The interest outcomes differ enormously — often by a factor of three or more — and this calculator quantifies both side by side using exact month-by-month amortization, not rules of thumb. Assumptions: a fixed-rate loan with monthly compounding (the US standard for mortgages, auto loans, and personal loans), extra amounts applied entirely to principal, and an unchanged rate after the prepayment.

Most US mortgages have none — leave 0 unless your note says otherwise. Some personal and auto loans do charge one.

Current monthly payment: $1,896 · Interest left to pay with no prepayment: $382,633

Option A — keep your payment, pay off early

$117,164 saved

  • Term: 360 → 286 months (74 months ≈ 6.2 years sooner)
  • You pay $1,896 per month (unchanged)
  • Total remaining interest: $265,469

Option B — recast: keep the term, lower the payment

$31,886 saved

  • Payment: $1,896 → $1,738 ($158 less per month)
  • Term stays 360 months
  • Total remaining interest: $350,747
Which to pick? Paying off early (Option A) saves $85,278 more interest here — it almost always wins mathematically, because the lender charges interest for fewer months. Choose the recast only if monthly cash flow is tight and the lower payment buys you real breathing room; a payment you miss costs far more than the interest difference.

How to use the loan prepayment calculator (extra payments & lump sum)

  1. Enter the loan as it stands today: remaining balance, annual interest rate (the note rate on your statement, not the fee-loaded APR), and months left — pull these from your latest statement, not the original closing documents.
  2. Add an extra monthly payment, a one-time lump sum, or both. For the lump sum, set when it lands (0 means right now; 12 means after 12 more payments).
  3. Leave the prepayment penalty at 0 for nearly all US mortgages; check the contract on personal and auto loans, where penalties still show up.
  4. Compare the cards: Option A keeps your payment and retires the loan early; Option B (recast) keeps the term and lowers the payment. Both show interest saved net of any penalty.

Worked example: $25,000 prepaid on a $300,000 mortgage

Take a $300,000 balance at 6.5% with 360 months (30 years) left. The standard amortization formula gives a monthly payment of about $1,896, and total remaining interest with no prepayment is about $382,600. Now apply a $25,000 lump sum today, leaving $275,000 outstanding:

  • Option A — keep the $1,896 payment: the loan now pays off in roughly 286 months instead of 360, about 74 months (over six years) sooner, and total interest drops to roughly $265,500 — a saving of about $117,000. The closed form for the new term is n′ = −ln(1 − P′r ⁄ M) ÷ ln(1 + r), with P′ the post-lump balance, M the payment, and r the monthly rate.
  • Option B — recast over the same 360 months: the payment re-amortizes to about $1,738, a relief of roughly $158 per month, but total interest only falls to about $350,700 — a saving near $31,900.

Same $25,000, roughly 3.7 times the saving — the only difference is how long the lender keeps charging interest. Recurring extras work the same way: adding just $100 a month to this loan pays it off about 48 months sooner and saves roughly $61,000. The calculator reproduces these numbers exactly from a month-by-month schedule, so your own figures will be precise rather than rounded.

When NOT to prepay

Prepayment is a guaranteed return equal to your loan rate, but it is not automatically the best use of cash. Skip or defer prepaying when: (1) you lack an emergency fund of 3–6 months of expenses — liquidity beats a few points of interest, and unlike a savings account, money sent to the mortgage is hard to get back; (2) you hold costlier debt, since clearing a 12% personal loan or a 20–30% credit-card balance first is strictly better (see the credit card interest calculator); (3) your loan rate is low and your horizon is long — money compounding at an assumed 10% nominal in an index fund for 15 years can outgrow a 6.5% saving, though that return is an assumption, not a promise, and the prepayment's return is certain; or (4) you itemize and the mortgage-interest deduction meaningfully lowers your effective rate — though since the 2017 tax law raised the standard deduction, most households no longer itemize, so don't assume a tax benefit you aren't actually claiming. Model the invested alternative with the investment goal calculator before deciding, and recompute your base monthly payment any time with the loan payment calculator.

Frequently asked questions

Pay off early or recast — which saves more interest?

Paying off early, almost always. Interest accrues monthly on the outstanding balance, so the option that drives the balance to zero fastest minimizes total interest. In the worked $300,000 example below, keeping the payment saves roughly 3.7 times as much interest as recasting for the same $25,000 lump sum. The honest counterargument: a recast improves monthly cash flow immediately, which matters if your budget is stretched — a missed payment damages your credit and triggers late fees that dwarf the interest arithmetic. Note that mortgage recasts typically cost a $150–$500 servicer fee and not every loan qualifies (FHA, VA, and USDA loans generally can't be recast); auto and personal lenders usually don't recast at all.

Do US loans charge prepayment penalties?

Rarely on mortgages. Federal rules adopted after Dodd-Frank bar prepayment penalties on most home loans, and where they're still allowed they're capped and limited to the first three years. Government-backed loans (FHA, VA, USDA) carry none. Penalties survive mainly in personal loans and some auto loans — especially precomputed-interest contracts, where interest is fixed up front and early payoff yields only a partial rebate. Read the note before sending a lump sum; this calculator lets you enter a penalty and nets it out of the savings.

When does an extra payment help the most?

Early in the loan. In the first years, the balance is near its peak and most of each payment is interest, so removing principal then cancels decades of future interest on that amount. A $25,000 lump sum in year 2 of a 30-year mortgage saves far more than the same $25,000 in year 22, when most remaining payments are principal anyway. If you expect a bonus or tax refund, prepaying it sooner beats saving it up for a round number later.

Should I prepay my mortgage or invest the money instead?

Compare the loan rate with the after-tax return you realistically expect from investing. Prepaying a 6.5% mortgage is a guaranteed, risk-free 6.5% return; US stock index funds have averaged around 10% per year nominally over long periods, but that figure is an assumption, not a promise, and comes with real volatility. Remember the deduction caveat: mortgage interest only lowers your effective rate if you itemize, and roughly nine in ten filers take the standard deduction instead, so most borrowers pay the full note rate. A common middle path: clear high-rate debt first (credit cards at 20%+ always win), keep an emergency fund, then split surplus between prepayment and investing.

How do I make sure my extra payment actually reduces principal?

Tell the servicer explicitly. US mortgage servicers commonly treat an unmarked extra amount as an early payment of next month's installment — which advances your due date but saves you nothing. Use the 'apply to principal' option in the payment portal or write 'principal only' on the check, then verify on the next statement that the balance dropped by the full extra amount. Also confirm any escrow shortage didn't absorb it.

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