Mortgage Amortization & Early Prepayment Decision Calculator (Term vs Payment)

Mastering Mortgage Amortization & Early Prepayment Mathematics

A 30-year mortgage is the largest financial liability most households ever carry. Whether you are choosing between Equal Principal & Interest (Level Payment) and Equal Principal (Linearly Decreasing Payment), or deciding how to deploy a lump-sum bonus toward an early prepayment, understanding how interest accrues month by month can save you hundreds of thousands in lifetime interest.

1. Level Payment vs. Equal Principal Formulas

• Equal Principal & Interest (Standard Amortization): Your monthly payment remains constant throughout the loan term, while the internal split shifts from interest-heavy in early years to principal-heavy in later years:

  M = P × [ r × (1 + r)^n ] / [ (1 + r)^n - 1 ]

  where P is initial principal, r is monthly interest rate (Annual Rate / 12), and n is total months.
• Equal Principal: You repay a fixed slice of principal (P / n) every month plus interest on the remaining balance. Your monthly payment starts higher and drops by (P / n) × r each month.

2. Shortening Loan Term (Plan A) vs. Reducing Monthly Payment (Plan B)

When you inject a lump-sum principal reduction at month k, your remaining balance drops immediately. Recalculating the schedule while keeping your monthly payment unchanged (Plan A) compresses the remaining timeline and eliminates years of interest accrual. Recalculating over the original remaining term (Plan B) lowers your mandatory monthly obligation immediately, providing cashflow flexibility at the cost of higher cumulative interest.