Mortgage overpayments: compare payment and term reduction
A practical guide to the model, with a reproducible example and checks before asking your lender for a contractual quote.
Start with the right remaining balance
Enter the principal still owed, the annual nominal interest rate applied to it and the remaining months. Do not enter the purchase price or original loan amount if part of the debt has already been repaid. The rate field calculates interest on principal; it does not reconstruct an all-in annual cost measure.
The initial overpayment happens now, before the first simulated instalment. If you plan to make it in six months, you first need the balance expected at that point: this tool does not automatically defer the payment date.
A comparison with disclosed assumptions
Use a remaining balance of 150,000, a 3.5% annual nominal rate, 20 years remaining, 10,000 paid now and no fees. The original monthly payment is about 869.94 and remaining interest about 58,785.50. The model keeps the rate fixed across the full remaining term.
| Scenario | Regular payment | Months | Interest avoided |
|---|---|---|---|
| A · Lower payment | 811.94 | 240 | 3,919.03 |
| B · Shorter term | 869.94 | 218 | 9,495.72 |
| C · Another 100 monthly | 969.94 | 188 | 16,803.67 |
The table shows regular payments. B’s estimated final payment is 512.89; C’s is 603.13. The month count includes that final partial instalment. Displayed amounts are rounded for reading; internal calculations retain numerical precision.
The extra principal is not itself a saving
The 10,000 is paid immediately to reduce principal: it is not subtracted from total costs a second time. Total remaining cash outlay includes that payment, later instalments and entered fees. The saving figure instead compares interest in the two schedules and deducts the transaction costs.
Try adding 400 in fees. B’s net saving becomes about 9,095.72, while its regular payment and month count stay unchanged: the fee is paid separately, not financed. If entered fees exceed avoided interest, the result is negative. The calculator does not decide whether a fee is due; it uses the amount you enter.
Understand the three options
A lowers the model’s regular payment while retaining the original term. B keeps the original payment and finishes sooner. C adds your chosen monthly amount to B until payoff. If the initial payment covers all principal, no later instalments remain; a real payoff quote may still contain additional contractual items.
This is a nominal comparison of future cash flows. It does not compare alternative investment returns, liquidity needed for emergencies, the time value of money or tax effects. A larger avoided-interest figure does not on its own identify an option suitable for your circumstances.
The formula and schedule
For principal P, monthly rate i = annual nominal percentage ÷ 100 ÷ 12 and n months, the payment is P × i ÷ [1 − (1 + i)−n]. At zero interest it is P ÷ n. Each month, interest equals opening principal × i; the rest of the payment reduces principal. The final instalment is capped at principal and interest still due.
The CSV contains the full schedule. Month 0 represents the initial overpayment; fees have a separate column. A lender’s schedule may differ because of dates, rounding, daily interest or contractual conventions. The printable summary records assumptions so you can discuss them without mistaking the simulation for an offer.
Before instructing your lender
- Ask for the actual amount due on your chosen date, separating principal from other items.
- Check which payment-reduction or term-reduction options your contract supports.
- Check limits on extra payments and any applicable costs.
- Verify the revised schedule and payment dates before authorizing a transaction.