Extra Mortgage Payment Calculator

• Compares your accelerated schedule against the untouched one, so the saving is a genuine difference rather than a headline.
• Models monthly extras, an annual lump sum, a one-time payment and accelerated biweekly, at a matched annual budget.
• Timing matters: the same dollar paid in year one saves far more than in year fifteen.
• Includes the three checks worth making before prepaying anything.

Why an extra payment is worth more than it looks

When you make an extra principal payment, the entire amount reduces the balance immediately. There is no interest charged on it, because interest is only charged on what remains owed. And because that reduction persists for every remaining month of the loan, the saving compounds.

Consider a $320,000 balance at 6.5% with 27 years left. A single extra $10,000 paid today:

• Removes $10,000 from the balance permanently.
• Avoids $54 of interest in the first month alone (10,000 × 0.065 ÷ 12).
• Avoids that same charge, compounding, for 324 months.
• Shortens the loan by roughly two and a half years.

The total interest avoided is around $37,000 — for a $10,000 payment. That is not a return in the investment sense; it is an avoided cost. But the effect on your net position is the same, and it is guaranteed in a way no investment return is.

Interest avoided by an extra payment E made in month m
  ≈ E × [(1 + i)^(n − m) − 1]

where i is the monthly rate and n is the original number of payments.
The earlier m is, the larger the exponent, and the larger the saving.

The four strategies, compared fairly

The results table compares four approaches at roughly the same annual cost, so the comparison is like for like rather than comparing a large commitment against a small one.

Extra every month. The most common approach and the easiest to automate. Because the money arrives early and often, it performs well.

An annual lump sum. A tax refund or bonus, applied once a year. Slightly less effective than the same total spread monthly, because on average the money arrives later in each year — but it is easier for people whose income is lumpy, and a plan you actually follow beats an optimal one you abandon.

Accelerated biweekly. 26 half-payments a year, which is 13 monthly payments instead of 12. The entire benefit comes from that thirteenth payment. You can replicate it exactly by dividing one monthly payment by twelve and adding it to each payment — with no enrolment and no fee.

A single lump sum now. Usually the strongest per dollar in the table, because the money is applied at the point where the remaining term, and therefore the avoided interest, is longest.

Three things to check before you prepay

1. That the money actually reaches principal. This is the most important practical detail and the one most often missed. Many servicers, by default, hold extra money as a prepaid instalment — reducing your next payment rather than the balance. Some apply it to escrow. The instruction "apply to principal only" needs to be given in writing, on every payment, and you should verify it on the following statement. A payment misapplied for a year achieves nothing.

2. Whether the loan has a prepayment penalty. Rare on conforming mortgages and prohibited on qualified mortgages in most circumstances, but not impossible on some non-conforming products. Check the note.

3. Whether this is the best use of the money. Paying off a mortgage at 6.5% is equivalent to a guaranteed 6.5% pre-tax return. Two things usually beat it:

• Higher-rate debt. A credit card at 23% is costing you three and a half times as much per dollar.
• An unfunded emergency reserve. Money in a mortgage is extremely hard to retrieve. Prepaying does not reduce next month's required payment — it shortens the loan. If you lose your income after prepaying $40,000, you still owe the full payment, and you cannot get that $40,000 back without a refinance or a home equity loan, both of which require income to qualify for.

Employer retirement matching is also worth clearing first: an immediate 50%–100% match on your contribution is a return no mortgage rate approaches.

Prepay or invest?

The comparison is not simply "6.5% guaranteed versus 8% expected". Three adjustments matter.

Risk. The mortgage return is certain. The investment return is not. A guaranteed 6.5% and an expected 8% with a wide distribution are not the same thing, and how you weigh that difference is a question about your own tolerance, not a mathematical fact.

Tax. Investment returns in a taxable account are reduced by tax on dividends and eventual gains. Returns inside a tax-advantaged account are not. Mortgage interest is only deductible if you itemise, which most households no longer do. So for most people the honest comparison is a guaranteed 6.5% after tax against an uncertain after-tax investment return.

Liquidity. Investments can be sold. Home equity cannot, without borrowing against it. That asymmetry is a real cost of prepaying that no interest-rate comparison captures.

There is no universally right answer here. A common middle path is to fund the emergency reserve and any employer match first, clear high-rate debt, then split surplus money between investing and prepaying rather than choosing one.

Recasting: the option most people have not heard of

If you make a large lump-sum payment, prepaying shortens the term but leaves your required monthly payment unchanged. A recast does the opposite: the servicer re-amortizes the remaining balance over the remaining term, producing a lower required payment.

Recasting usually costs a small fee, requires a minimum lump sum, and is not offered on every loan type. It does not save as much total interest as prepaying without a recast, because the term stays the same. But it lowers your committed monthly outgoing permanently, which is valuable if cash flow is the constraint rather than total cost.

This calculator models prepayment without recasting. If a lower required payment is what you actually want, ask your servicer whether a recast is available before making the payment — some require you to request it in advance.

Common mistakes

Sending extra money without instructions. Covered above, and worth repeating because it is the single most common way prepayments fail to do anything.

Paying for a biweekly service. Third-party companies charge a setup fee and a per-transaction fee to do something you can do for free by adding one twelfth of a payment to each month.

Prepaying with no emergency fund. Illiquid money cannot pay for a broken furnace.

Prepaying a low-rate mortgage while carrying card debt. Straightforwardly backwards on the numbers.

Assuming prepaying lowers next month's payment. It does not, unless you also recast.

Frequently asked questions