This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
Two ways to use a lump sum
When you put a large sum toward your mortgage, from a bonus, an inheritance or the sale of another property, the lender can apply it in two ways:
- Recast: the balance drops and the lender recalculates the monthly payment over the remaining term. You pay less each month, and the loan ends on the same date.
- Keep the payment: the balance drops but you keep paying the same amount. The loan ends years earlier and you save more interest.
In the US, without a formal recast, extra principal payments shorten the term by default; a recast must be requested, usually for a fee of $150 to $500 and a minimum lump sum of $5,000 to $10,000.
How the calculator works
From the balance, the rate and the remaining term, it computes your current payment. It then subtracts the lump sum and computes the new payment over the same term, and the number of months needed if you keep the current payment. The interest saved is the difference in total payments minus the lump sum itself, less the fee.
Worked example
You owe $300,000 at 6.5% with 25 years left, a payment of about $2,026 a month. You put $50,000 toward the loan.
- Recast: the payment drops to about $1,688, freeing $338 a month. Over 25 years, you save about $51,000 in interest, less a $250 fee.
- Keep paying $2,026: the loan is paid off in 205 months instead of 300, about 8 years sooner, and you save about $143,000 in interest.
Which to choose?
- Choose the recast if you want a lower required payment for flexibility, for example before retirement, during a career change, or if you plan to invest the monthly difference.
- Keep the payment if your goal is to be mortgage-free sooner and save the most interest.
- With a low mortgage rate, investing the lump sum may earn more than the interest saved, but it carries market risk.
Eligibility
Most conventional loans can be recast. FHA, VA and USDA loans generally cannot, and some jumbo lenders have their own rules. Always keep an emergency fund before making a large prepayment, because money put into a house is hard to get back without selling or borrowing.