Extra Principal Payment Calculator

Lower the payment or shorten the term? Both numbers, side by side

Reference table

Current balance	Saved by shortening the term	You finish	Saved by lowering the payment
10,000	7,063.11	17 yr 7 months sooner	7,005.88
20,000	12,838.27	15 yr 8 months sooner	12,456.81
25,000	15,354.64	14 yr 11 months sooner	14,677.21
50,000	25,317.29	12 yr 0 months sooner	21,916.16
75,000	32,374.16	10 yr 1 months sooner	25,016.53
100,000	37,658.46	8 yr 8 months sooner	26,190.21
125,000	41,772.05	7 yr 8 months sooner	26,595.76
150,000	45,070.14	6 yr 10 months sooner	26,728.58
200,000	50,036.53	5 yr 8 months sooner	26,784.78
250,000	53,602.36	4 yr 10 months sooner	26,790.9
300,000	56,287.51	4 yr 2 months sooner	26,791.83
400,000	60,069.83	3 yr 4 months sooner	26,791.83
500,000	62,605.72	2 yr 9 months sooner	26,791.83
750,000	66,360.52	1 yr 11 months sooner	26,791.83
1,000,000	68,425.25	1 yr 6 months sooner	26,791.83

📋 Before you call the lender

Ask in writingThat it goes to principal, not to future payments
Say which one you wantIf you do not choose, most lenders lower the payment
Ask about the feeSome contracts charge for early repayment
Keep the receiptAnd check next month's statement

What moves the number

The earlier you pay, the more you save. The same money at the start of a loan is worth far more than at the end, because interest is charged on the balance and over time.
Shortening the term almost always saves more, but it leaves your payment as high as it was. If money is tight, a lower payment is what prevents a missed one, and a missed payment costs more than the difference.
If your loan rate is lower than what your savings earn, paying extra is not automatically the better move. Compare the two rates first.
Small and steady usually beats big and late. A thousand a month for a year saves more than twelve thousand in December.

The question your lender asks

The moment you make an extra payment toward principal, your lender asks a question almost nobody is ready for: should this lower your monthly payment, or shorten your loan? Both sound good and they are not the same. Shorten the term and you keep paying what you pay now, but the loan ends earlier. Lower the payment and you finish on the same date you already had, but you pay less each month. The gap between them is large: on a 150,000 mortgage at 6.5% with twenty years to go, paying an extra 300 a month saves about 45,000 in interest if you shorten the term, and about 26,700 if you lower the payment. Nearly double, from the same money out of the same pocket. The reason is that interest is charged on the balance AND over time: removing years removes both at once, lowering the payment removes only one. This page does not make you pick first. It runs both and shows you the difference, which is the thing you actually came to decide.

How this is calculated

The loan amortizes on the French system, which is what nearly every consumer and mortgage loan uses: payment = B × i / (1 − (1+i)^−n), where B is the balance, i the monthly rate (the annual nominal divided by twelve) and n the months remaining. The two scenarios are not solved with a closed formula, they are simulated month by month. That is deliberate: when you pay extra every month and want the payment lowered, the lender recalculates the payment each time, so no single expression describes it. Simulating means both scenarios are computed with the same arithmetic, which is what makes the difference between them mean something. What this leaves out, and you should know it: bundled insurance, prepayment fees, and the exact day-count each lender uses. It gives you the order of magnitude and the direction of the decision, not the cent on your statement.

What to keep in mind

If you do not choose, the lender chooses for you. Most default to lowering the payment, which is the option that saves you least. Say it explicitly and in writing.
Some contracts charge a prepayment fee. If the fee eats the saving, paying extra does not pay off. Ask before you send the money.
Check that the money is applied to PRINCIPAL and not held as prepaid future installments. Those are different things and the second saves you almost nothing.
The earlier in the life of the loan, the more you save. In the first years almost all of your payment is interest, so that is where an extra payment bites hardest.
With several debts, pay down the highest rate first. A consumer loan at 24% saves far more than a mortgage at 6%.
Check your emergency fund first. Running out of cash and falling back on a 40% credit card undoes the saving and more.

Where this calculator stops

It does not include life or property insurance bundled with the loan. Those keep being charged and do not fall when you pay extra.
It does not include prepayment fees or re-amortization costs, which vary by lender and by contract.
It assumes a fixed rate. With a variable rate the payment moves on its own and this is an approximation.
It uses the annual nominal rate divided by twelve. If your contract quotes an effective annual rate, convert it first or the result will come out low.
It does not cover inflation-indexed loans, where the balance itself is revalued each month.
It does not replace your lender's official re-amortization. Use it to decide; get the exact figure from them.

Worked examples

The same mortgage, the two decisions

150,000 mortgage at 6.5%, 20 years left, 300 extra a month

Monthly rate = 6.5% / 12 = 0.5417%
Current payment = 150,000 × 0.005417 / (1 − 1.005417⁻²⁴⁰) = 1,118.36
Interest if you do nothing = 1,118.36 × 240 − 150,000 = 118,406
SHORTEN: you pay 1,418.36 a month and finish in 158 months
LOWER: you pay for all 240 months, with a payment that keeps dropping

Shortening saves 45,070 and finishes 6 yr 10 mo sooner. Lowering saves 26,729. Difference: 18,342

Same loan, but a single 10,000 lump sum

The balance drops from 150,000 to 140,000 in month one
SHORTEN: the payment stays at 1,118.36 and 30 months disappear
LOWER: still 240 months, but the payment falls to 1,043.80

Shortening saves 23,755 and finishes 2 yr 6 mo sooner. Lowering saves 7,894 and frees up 74.56 a month

Frequently Asked Questions

Which is better, a lower payment or a shorter term?

In pure money, a shorter term, and usually by a lot: in the mortgage example it saves 45,070 against 26,729. But a lower payment is not a silly choice. If your budget is tight, cutting the fixed payment is what protects you from a bad month, and a missed payment costs more in late interest and credit damage than the difference. The practical rule: shorten the term if you can keep paying today's payment without straining; lower the payment if paying extra leaves you on the edge.

Does my lender have to let me choose?

In Spain the Banco de España recognises both options and the customer picks. In Colombia the Superintendencia Financiera requires that the borrower be able to choose between reducing the term or reducing the payment. In Mexico CONDUSEF documents the same for advance payments. In practice, if you say nothing the lender applies its own default, which is usually the lower payment. Say it when you make the payment and ask for confirmation.

Is it better to pay a little each month or a lump sum once a year?

A little each month, if the total is the same. A thousand a month for twelve months saves more than twelve thousand in December, because each payment starts shrinking the balance the day it lands, and interest is charged on that balance. The gap is small over one year, but repeated across the life of the loan it adds up.

Can they charge me for paying extra?

It depends on the contract and the country. Many consumer loans charge nothing; some mortgages do carry an early repayment fee, usually a percentage of the amount and often capped by law in the early years. Ask before you pay: if the fee eats a good part of the saving you see here, the arithmetic changes.

Should I pay extra or invest the money instead?

Compare two rates. If your loan is at 24% and your savings earn 8%, paying it down wins outright. If your mortgage is at 4% and you have somewhere to put the money at 9% with risk you accept, it can flip. Be careful comparing unlike things: the saving from paying down debt is certain and untaxed, while an investment return is neither.

Why does my lender give me a different number?

Three usual reasons. One, this calculator excludes insurance and fees, and your real payment includes them. Two, the rate: this uses the annual nominal divided by twelve, and if your contract quotes an effective annual rate the maths change. Three, every lender counts days slightly differently when re-amortizing. Use this page to choose between the two options; get the exact figure from your lender in writing.