Mortgage Prepayment Savings Calculator
Calculate how an extra principal payment each month shortens your mortgage and saves interest over the life of the loan.
Why Extra Principal Payments Work So Well
Every extra dollar of principal paid eliminates the interest that dollar would have generated for the rest of the loan term. On a 30-year mortgage at 6.85%, an extra $200/month from day one shaves about 7 years off the loan and saves over $130,000 in interest. The math is identical to earning a guaranteed return equal to your mortgage rate — risk-free, tax-free (you can't be taxed on interest you didn't pay).
The earlier you start the extra payments, the bigger the impact. The first $1,000 extra paid in year 1 of a 30-year loan saves more interest than the $1,000 extra paid in year 20. Source: Freddie Mac amortization research. Last updated: May 2026.
Extra Principal vs Investing the Difference
The argument against prepayment: invest the extra $200/month instead. At a 10% historical S&P 500 return, $200/month for 30 years grows to about $452,000 — better than the $130,000 saved on the mortgage. The argument for prepayment: the mortgage savings is guaranteed; the 10% return is not. Markets can crash, you might panic-sell, or you might never actually invest the difference.
The hybrid approach: max out tax-advantaged accounts first (401(k) match, Roth IRA, HSA), then split additional savings between extra principal and taxable investing. This captures most of the investing upside while reducing mortgage stress.
Lump-Sum vs Monthly Extra Payments
Both strategies work. A $5,000 lump sum in year 5 of a 30-year mortgage saves about the same total interest as $42/month extra for the same period. The lump sum is psychologically cleaner; monthly extra payments are easier to budget. Some borrowers do both — automate $200/month extra and apply tax refunds or bonuses as lump sums.
Recasting vs Prepayment vs Refinance
Three different tools. Prepayment shortens the term and cuts interest but doesn't change your required monthly payment. Recasting (after a lump sum, typically $5,000-$10,000 minimum) re-amortizes the loan at the new lower balance, reducing your required monthly payment — useful if you want lower obligations. Refinancing requires closing costs and only makes sense if rates have dropped 0.75%+ from your original rate. Source: Consumer Financial Protection Bureau.