- Every prepaid dollar goes entirely to principal, so it removes every future interest charge that dollar would have generated.
- A prepayment made early is worth several times the same prepayment made late — the saving is interest avoided, and there is more of it left to avoid.
- Accelerated bi-weekly contributes one extra monthly payment a year without you naming an amount, which is why it is the lever most people can actually sustain.
- Prepayment privileges are set by your mortgage contract — check the annual limit before planning a large lump sum.
How prepaying a mortgage works
A scheduled mortgage payment is split between the interest owed for that month and whatever is left, which reduces the principal. A prepayment skips the first half entirely: every dollar goes straight to principal.
That matters more than the size of the dollar suggests, because the principal you retire early would otherwise have been charged interest every month for the rest of the amortization. Removing $1,000 of balance in year two removes twenty-three years of interest charges on that $1,000 — which is why the interest saved by a prepayment is routinely several times its face value.
There are three ways to do it and this calculator models all three: a recurring extra amount on top of each payment, a one-off lump sum, and switching to accelerated bi-weekly payments. The third is the one most borrowers actually take, because the extra it contributes is not an amount anyone has to choose.
The math
The scheduled payment is recomputed from your balance and remaining amortization rather than taken as an input, so the comparison is against the loan as contracted — the number on your statement.
The accelerated schedule is then run month by month at the higher payment. Each month, interest is balance × rate ÷ 12; the payment minus that interest reduces the balance; the loop stops the month the balance clears. Months saved is the difference between the two run lengths, and interest saved is the difference between the two interest totals. A lump sum is applied to the balance before the first payment of the accelerated run.
Accelerated bi-weekly is modelled as an equivalent monthly extra rather than as a second, near-identical bi-weekly loop. Twenty-six half-payments a year is thirteen monthly payments, so the extra is exactly one monthly payment spread over twelve months — one code path, one set of assumptions, and the two arms of the comparison cannot drift apart.
Worked example
A $420,000 balance at 5.5% with 25 years of amortization left carries a scheduled payment of about $2,579 a month and $353,750 of interest still to come.
Add $250 a month and the mortgage clears in 250 months instead of 300 — four years and two months earlier — with $285,752 of interest, a saving of $67,999. Switch instead to accelerated bi-weekly, and the $1,290 half-payment takes 44 months off the schedule and saves $60,197 without the borrower choosing an amount at all. A single $20,000 lump sum today, with no change to the monthly payment, saves $53,964 and finishes 28 months early. Note the shape: $100 a month saves $31,055, $250 saves $67,999, and $500 saves $112,997 — more, but not proportionally more.
Key terms
- Prepayment
- Any amount paid above the scheduled payment. It is applied entirely to principal, which is what makes it disproportionately effective.
- Accelerated bi-weekly
- Half the monthly payment, taken 26 times a year. Because 26 halves are 13 monthly payments, it quietly adds one extra payment a year.
- Prepayment privilege
- The amount your contract lets you prepay each year without a charge — commonly expressed as a percentage of the original principal plus a payment-increase allowance.
- Interest saved
- The difference between the interest you would have paid on the contracted schedule and the interest you pay on the accelerated one. It is not a rebate — it is a charge that never happens.