How to interpret the result
The baseline number is the standard amortizing payment. The interesting part is the comparison panel. The strategy that saves the most interest per dollar of extra payment is rarely the lump sum — the steady drip of extra monthly usually wins because it shortens the principal earlier, which reduces the interest on every subsequent payment. The lump sum is most powerful when applied in the first third of the loan, when interest is the largest share of each payment.
Where this calculator is honest about its limits
- It assumes a fixed-rate loan. Adjustable-rate mortgages will diverge quickly from the projection after the first reset.
- Prepayment penalties, if any, are not modeled. Some closed-end mortgages in the US/Canada charge interest for the first 3–5 years if you pay down principal aggressively — check your note.
- It does not model opportunity cost. Paying down a 6.5% loan is mathematically equivalent to earning a guaranteed 6.5% after-tax return. If you can earn more than that reliably in a diversified index fund, the math can flip.
FAQ
Why does most of my early payment go to interest?
Because amortization front-loads interest. In month 1, the interest charge is roughly (rate/12) × balance. For a 30-year $250k loan at 6.5%, that's $1,354 — before a single dollar of principal. The principal share grows month by month; by year 20, the ratio is roughly inverted.
Is it better to refinance or pay extra?
Refinance when the new rate is at least 0.75–1% lower AND you plan to stay past the break-even (closing costs ÷ monthly savings). If you can't stay that long, extra payments on the existing loan are usually the better deal.
Does the lump sum get applied directly to principal?
Yes — that's the whole point. The bank may apply it to "future payments" by default. You have to ask, in writing or through their portal, that the extra be applied as a principal reduction, not as an escrow prepayment. This calculator assumes you did that correctly.
Methodology
Monthly payment uses the standard amortization formula: P × r(1+r)n / ((1+r)n−1) where r is the monthly rate and n is the term in months. Interest per period is the prior balance × r. Prepayment simulations reduce principal in the indicated month and re-amortize the remaining balance over the original term. Source: standard actuarial math, identical to the formulas in any US CFPB consumer guide.