Mortgage Prepayment Calculator
Got a bonus, inheritance, or tax refund? See exactly how a lump sum payment reduces your mortgage balance, saves interest, and shortens your loan.
How Lump Sum Prepayments Save Interest
Every dollar you prepay is a dollar that stops accruing interest. If you owe $200,000 at 5.5% and make a $10,000 lump payment, that $10,000 would have cost you roughly $10,500 in interest over the remaining 25 years. You just saved that entire amount with one payment.
The earlier you make the prepayment, the more you save. A $10,000 payment in year one of a 30-year mortgage saves far more than the same payment in year 25, because year-one principal accrues interest for the next 29 years. Timing matters—don't wait for the 'perfect' amount. Make the payment as soon as you have the cash.
Lump sum payments also create a psychological win. Watching your balance drop by $10,000 or $20,000 in one shot feels different than slow monthly progress. That motivation can inspire you to keep finding ways to pay extra, building momentum toward full payoff.
Prepayment vs. Recast vs. Refinance
A prepayment just reduces your balance. Your monthly payment stays the same, but you pay off the loan faster. This is the simplest option and costs nothing.
A recast (or re-amortization) recalculates your payment based on the new lower balance. If you pay $10,000 extra and recast, your monthly payment drops while the loan term stays the same. Lenders usually charge $150 to $500 for this service, and not all loans are eligible. Recasting makes sense if you want lower monthly payments for cash flow reasons.
Refinancing replaces your current loan with a new one at a different rate or term. This can make sense if rates have dropped or you want to switch from a 30-year to a 15-year loan. But refinancing has closing costs ($2,000 to $5,000), requires a credit check, and resets your loan clock. Only refinance if the rate savings outweigh the costs.
When to Hold Off on Prepayment
If you have higher-interest debt, pay that off first. Credit cards at 20% or personal loans at 12% cost you far more than a 5.5% mortgage. Always eliminate the highest-rate debt before making discretionary mortgage prepayments.
Also, don't drain your emergency fund. If a $10,000 lump payment leaves you with only $2,000 in savings, you're one car repair or medical bill away from going into credit card debt at 18%. Financial security comes before mortgage optimization.
Finally, consider opportunity cost. If you're in your 30s or 40s and have decades before retirement, investing that lump sum in a tax-advantaged account might grow more than the interest you'd save. Run the numbers—mortgage prepayment is a guaranteed return, but it might not be the highest return available to you.
Frequently Asked Questions
Should I make a lump sum payment or invest the money?
Compare your mortgage rate to expected investment returns. If your mortgage is 6% and you can earn 8% investing, investing wins. But paying down the mortgage is guaranteed savings with no risk.
Will a prepayment lower my monthly payment?
Not automatically. By default, lenders keep your payment the same and shorten the loan term. You can request a recast (re-amortization) to lower the payment, but many lenders charge a fee for this.
Is there a penalty for making a lump sum payment?
Most modern mortgages have no prepayment penalty, but check your loan documents. FHA, VA, and conventional loans originated after 2014 rarely have penalties.
How should I specify the payment?
Always write 'apply to principal' on the check or in the payment memo. Otherwise, some servicers may apply it to future payments instead of reducing your principal immediately.
Can I prepay part of my mortgage and keep my payment the same?
Yes, that's the default behavior. Your payment stays the same, but you pay off the loan faster. If you want to lower your payment instead, ask your lender about recasting the loan.