A bonus, inheritance or home-sale proceeds can make a big dent in your mortgage. This amortization calculator shows what happens when you apply a one-time lump sum to principal: how your schedule changes, how many years you cut, and how much interest you never pay.
How this calculator works
The calculator builds your normal amortization schedule from the loan amount, rate and term. Each month's interest is the outstanding balance times the monthly rate; the remainder of your payment reduces principal.
In the year you choose, the lump sum is subtracted from the balance. Your required payment stays the same, but because the balance is now lower, a larger share of every later payment goes to principal. The loan finishes early.
The earlier you make the lump sum, the bigger the effect, because there are more remaining months in which the avoided interest would have accrued.
The formula
Bₖ = P(1 + r)^k − M × ((1 + r)^k − 1) / r- Bₖ
- balance after k payments
- P
- original loan amount
- r
- monthly rate = annual rate ÷ 12
- M
- monthly payment
- k
- payments made so far
Worked example
Suppose you borrow $300,000 at 6.75% for 30 years. Your payment is about $1,946. After two years (24 payments) the balance formula gives roughly $293,400 still owed — early payments are mostly interest.
At the start of year three you pay a $20,000 lump sum, dropping the balance to about $273,400. You keep paying $1,946 each month.
Because the balance is $20,000 lower, the monthly interest charge falls by about $112 right away, and that extra $112 flows to principal every month afterwards. The loan ends roughly 3½ years early and you save around $75,000 in interest — almost four times the lump sum.
Tips
- Ask your servicer to mark the payment as a principal-only curtailment.
- Keep an emergency fund before sending a windfall to your mortgage — home equity is hard to access quickly.
- If you would rather lower your monthly payment, ask about a mortgage recast after the lump sum.
Frequently asked questions
Is it better to pay a lump sum or extra monthly payments?
Dollar for dollar, money applied earlier saves more interest. A lump sum today beats the same total spread over future months. Extra monthly payments are easier to budget, though, and both approaches shorten the loan.
Will a lump sum payment lower my monthly mortgage payment?
Not automatically. Your payment stays the same and the loan ends sooner. A recast, offered by many lenders for a small fee, re-amortizes the new balance to lower the payment.
What is a mortgage recast?
A recast keeps your rate and term but recalculates the monthly payment based on the reduced balance after a large principal payment. Lenders often require a minimum lump sum, commonly $5,000 to $10,000.
Should I use a lump sum to pay down my mortgage or invest it?
Compare your mortgage rate with your expected after-tax investment return and your need for liquidity. Paying down the loan is risk-free; investing offers higher potential returns with volatility.