Mortgages

Mortgage early repayment calculator

Enter the mortgage, how many instalments you have paid and how much you want to put in: you get the balance still owed, the interest saved, and shortening the term set against cutting the instalment.

Shorten the term or cut the instalment

Paying a lump sum off a mortgage opens a choice the lender always offers: keep the instalment and finish earlier, or keep the finish date and pay less each month. They are not equivalent. Interest accrues on the debt for as long as the debt exists, so removing years of debt saves far more than lightening the instalment over the same years. On a long mortgage the difference is often double.

The figure that surprises most people is the balance still owed. In a French schedule the instalment is constant but its composition is not: at the start it is nearly all interest, at the end nearly all capital. A fifth of the way through a twenty-five-year mortgage, far less than a fifth of the capital has been repaid and the balance is still above 80% of the original. That is why the balance is computed here rather than asked for.

Whether it is worth doing has to be judged against the alternative, not on its own. If the money would have earned more invested than the mortgage costs, repaying early costs you in opportunity; if the mortgage costs more than any safe holding returns, repaying is a certain return equal to the rate. Where there is no early-repayment fee the comparison is clean: the mortgage rate on one side, what the same money would earn elsewhere on the other.

Common mistakes

Estimating the balance as the amount borrowed less the instalments paid. Early instalments are mostly interest: far less capital has been repaid than has been handed over, and the balance is much higher than it seems.
Choosing to cut the instalment expecting it to save as much as shortening the term. It eases the month but leaves the debt alive to the original finish date, and interest keeps accruing for all those years.
Assuming there is a fee. Many residential mortgages carry none at all; other lending does, and it has to be entered because it eats into the saving.

Frequently asked questions

Is it better to cut the term or the instalment?

Cutting the term saves more interest, because the debt clears sooner and stops producing it. Cutting the instalment frees up money every month instead. Which is better depends on what you need: the larger total saving, or the monthly breathing room.

How do you work out the balance still owed?

Take the original amount grown at the period rate and subtract the instalments paid, grown the same way: C·(1+i)^k − R·((1+i)^k − 1)/i, with k the instalments paid. This calculator does it from the mortgage's own figures.

Is there a fee for repaying early?

It depends on the loan. Residential mortgages in several countries carry none by law; other lending usually does, and it is typically a small percentage of the amount repaid. Enter it here if yours has one.

Should I repay the mortgage or invest the money?

Repaying is a certain return equal to the mortgage rate, less any tax relief you give up. Investing has a higher expected return but an uncertain one. The honest comparison is the mortgage rate against what a holding of comparable risk — that is, low risk — would return.

How this calculation works

French instalment: R = C·i/(1 − (1+i)^−n). Balance after k instalments: D = C·(1+i)^k − R·((1+i)^k − 1)/i — the capital grown at the rate less the instalments grown the same way. After a lump sum E the balance becomes D − E. Cutting the instalment: the new one is (D − E)·i/(1 − (1+i)^−m), with m the instalments that were left. Shortening the term: the instalment stays R and the count becomes m = −ln(1 − i·(D − E)/R)/ln(1+i), rounded up; the last instalment is whatever is left of the balance, not a full one. Interest still owed: instalments left times the instalment, less the balance. The saving is the difference between the interest owed before and after, less the fee, taken as a percentage of the amount repaid.

Mortgage payment

What you will pay each month, and what it costs in total.

Variable-rate mortgage

Stress-test the instalment against a rising index.

Remortgaging

Compare the present mortgage with an offer from elsewhere.

Installment comparison

Comparison table: how the instalment changes as you borrow less or shorten the mortgage term.