Mortgage Prepayment Calculator
See the interest saved and the shorter term from paying extra principal each month, simulated month by month with standard amortisation.
Input Data
Results
At a glance:Mortgage prepayment pays extra principal each month. The model amortises the balance monthly; the extra amount cuts the balance faster, reducing total interest. Results: normal payment, interest saved and months (term) cut versus the original plan.
Formula
Normal payment from standard amortisation of principal at the annual rate.
Each month apply normal payment + extra to principal; interest accrues on the falling balance.
Interest saved = original total interest − prepaid total interest; months saved = original months − new months.
$$\text{PMT} = \dfrac{P \times r (1+r)^n}{(1+r)^n - 1}, \quad r = \dfrac{\text{annual rate}}{12}$$$$\text{Interest Saved} = \text{Interest}_{\text{base}} - \text{Interest}_{\text{with extra}}$$How to Use
- Enter the loan principal and annual rate.
- Enter the original term and the extra monthly amount.
- Read the interest saved and the shorter term.
FAQ
Why does prepayment save interest, and how is the saving worked out?
Mortgage interest is charged on the remaining balance each month, so the smaller the balance, the less interest later. When you pay extra principal beyond the normal instalment, you cut the balance that every future period would have charged interest on, and that effect snowballs — the interest saved far exceeds the extra principal in proportion, while also clearing the loan sooner. This calculator works it out by month-by-month simulation: first it derives the normal monthly payment from the standard amortisation formula; then it simulates the normal plan (accruing interest and reducing principal until payoff, totalling the interest and months); then it simulates the extra-payment plan (same steps but with payment + extra each month, so the balance falls faster and the loan ends sooner with less interest); finally it subtracts the two — the interest gap is the saving and the months gap is the term cut. For HK$3m at 4% over 30 years with HK$3,000 extra a month, it shows about HK$674k saved and roughly 101 months (over 8 years) earlier — a striking illustration of prepayment's power.
Is prepayment always worth it — what should I weigh first?
Prepayment saves interest and frees you from debt sooner, but 'worth it' is not absolute; weigh several things before acting. First, the contract and penalty: some mortgages (especially within a penalty period) charge a penalty or limit the amount/frequency of partial prepayment, so check your contract first or the saved interest may be eaten by the penalty. Second, your emergency reserve: keep enough buffer (typically 3–6 months of expenses) before sinking spare cash into the mortgage, or a sudden job loss or medical bill could force high-interest borrowing. Third, opportunity cost — repaying earns a 'certain return equal to the mortgage rate' (the interest saved); compare that with the return you could get by investing the cash instead; if your mortgage rate is low and you can reliably earn more elsewhere, investing may win. Fourth, tax: in Hong Kong, qualifying home-loan interest can be deducted, and paying off early reduces deductible interest (though the interest saved usually far outweighs this). In short, prepayment is sound, but only after keeping an emergency fund, confirming no penalty, and weighing the investment alternative.
What assumptions and limits should I note when using this calculator?
Understanding the assumptions helps you read the result correctly. First, a fixed-rate assumption: the tool holds the rate constant for the whole term, but Hong Kong mortgages are usually floating (linked to Prime P or HIBOR H) and move with the market, so actual payments, interest and savings will differ when rates change — re-run at a few rates to sense the impact. Second, a fixed extra payment fully to principal: it assumes you add the same extra each month and it all reduces principal (not prepaying future instalments); the actual treatment (shorten term vs lower payment, whether you must apply) follows the bank, so confirm. Third, the months are an estimate: the final simulated month is usually not an exact integer, so the tool shows whole months while the real last payment may be smaller. Fourth, incidental fees are excluded — this tool focuses only on principal and interest. Fifth, real prepayment limits (penalty period, annual prepayment caps) are not modelled and depend on your contract. This calculator gives an ideal-assumption estimate to show the magnitude and power of prepayment; the actual figures and arrangements follow your bank and contract.
Should I choose 'shorten the term' or 'lower the monthly payment'?
When you make a partial prepayment, banks usually offer two treatments with very different savings, so confirm with the bank before choosing. First, 'shorten the term, keep the monthly payment the same': your extra principal cuts the balance while the instalment stays as before, so the same payment clears the loan sooner and the term shortens — this saves the most interest because you keep repaying at the original intensity, and this calculator's 'extra monthly' model is close to that effect. Second, 'lower the monthly payment, keep the term the same': after the extra principal the bank recomputes a lower payment to the original maturity, easing your cash flow but leaving the term unchanged; it also cuts total interest but usually by less, because you spend the saved payment room on lowering the burden rather than accelerating. In short: pick 'shorten term' to save the most and get debt-free fastest; pick 'lower payment' to ease cash flow. Not all banks/plans offer both; some default to one, some require application, and some restrict the frequency/amount/timing (e.g. penalty period) of partial prepayments. Before adding extra, ask the bank whether partial prepayment is allowed, how it will be handled, and whether any penalty or fee applies.
Would a one-off lump-sum repayment (e.g. a bonus) be better than monthly extra?
Monthly extra and a one-off lump sum are both prepayment; both cut principal early to save interest — the difference is timing and rhythm, and they can even be combined. Monthly extra (this tool's model) is disciplined and steady: it turns accelerated repayment into a habit and accumulates reliable, sizable savings — good for stable earners. A one-off lump sum suits irregular large inflows (year-end bonus, double pay, investment gains): you dump it into principal at once. The principle is 'earlier and larger repayment saves more', because early balances are large and interest is a high share of the instalment, so the same cash paid earlier saves more — hence a lump sum paid sooner generally saves more than spreading it over future months (provided it is truly spare cash and avoids penalties). In practice many do both: a steady extra each month plus a lump sum on a bonus. Before a large lump sum, watch: the penalty period (Hong Kong mortgages often penalise in the first 2–3 years, and a near-full redemption is more likely to trigger it); the annual prepayment cap (some banks limit the proportion per year); keep your emergency fund; and weigh the opportunity cost against investing. In short, the sooner and larger the principal cut, the more you save — but only once penalties are clear and your emergency fund is intact.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.