Prepayment Penalty Calculator

How it works

Penalty = prepaid × % , or prepaid × monthly rate × months of interest, or a flat fee · payment A = B × i ÷ (1 − (1 + i)⁻ⁿ) · shorter term: n₂ = −ln(1 − B₂ × i ÷ A) ÷ ln(1 + i) · interest saved = (A × n − B) − interest on the new schedule · net = interest saved − penalty

Many mortgages and personal loans charge a fee for repaying early: a percentage of the amount prepaid (the usual European “early repayment commission”), a number of months of interest, or a fixed fee. The decision is simple arithmetic — prepay when the interest you avoid is larger than the penalty. Keeping the payment and shortening the term saves the most interest; keeping the term lowers the monthly payment instead. Interest saved is not discounted, so for long horizons compare it also with what the money could earn elsewhere.

Worked example

With 150,000 left at 7% over 240 months the payment is 1,162.95. Prepaying 30,000 with a 2% penalty costs 600. Keeping the same payment, the remaining 120,000 is cleared in 13 years 3 months instead of 20 years — 81 months sooner — saving 64,940.03 of interest, so the net saving after the penalty is 64,340.03.

Sources: CFPB — What is a prepayment penalty? · Investopedia — Prepayment penalty

Frequently asked questions