Early repayment: term or payment
One lump sum, two ways to use it. Which saves more interest is not close, but the other one has its reasons.
Your figures
Result
- Saved by shortening the term
- $13,477
- New term
- 26 years and 11 months
- Payments removed
- 37
- Saved by lowering the payment
- $5,178
- New monthly payment
- $590.25
- Payment reduction
- $42.16
- Current payment
- $632.41
- Interest if you do nothing
- $77,666
What we assume
- The rate is the nominal annual rate and is assumed fixed for the rest of the term.
- No early repayment fee is included. It is capped by law in Spain and often zero, but check your own contract.
- The prepayment is assumed to be made now, in one go.
- The comparison is purely financial. It says nothing about whether the money is better used elsewhere.
How it is calculated
A lump sum reduces the outstanding balance immediately. From there you choose what to keep constant:
- Shorten the term: the payment stays the same, so more of it goes on principal and the loan ends sooner.
- Lower the payment: the term stays the same and the payment is recalculated on the smaller balance.
Why shortening usually wins
Interest is charged on the outstanding balance for as long as it exists. Ending the loan earlier removes whole years of interest; lowering the payment leaves the loan running just as long and only trims each charge. The gap is often large.
When lowering the payment is still right
When your monthly cash flow is tight. Shortening the term saves more money and gives you nothing today; lowering the payment costs you interest and buys you room. That is a liquidity decision, not an arithmetic one, and the arithmetic cannot make it for you.
An example
On 150,000 at 3% with 25 years left, prepaying 20,000 saves about 20,000 in interest by shortening the term against roughly 12,000 by lowering the payment. The payment route drops the monthly figure by about 95.
Frequently asked questions
Which should I choose?
Shorten the term if you can comfortably keep paying the same amount: it saves considerably more. Lower the payment if the monthly figure is the problem.
Is there a fee for paying early?
In Spain it is capped by law and is frequently zero, but it depends on your contract and on whether the rate is fixed or variable. Check before you commit the money.
Is prepaying better than investing the money?
Prepaying gives you a guaranteed return equal to your interest rate, tax-free. Beating that reliably in the market is not easy, and the certainty is worth something on its own.
Keep calculating
All tools →- Loan payment calculatorWork out the monthly payment on a loan or mortgage and, above all, how much you will end up paying in interest.
- Loan amortisation scheduleEvery payment broken down. The interesting part is not the total, it is watching how long it takes before you are mostly paying off the debt.
- How much mortgage can I affordTwo things limit you: what you can pay each month and what you have saved. We tell you which one is binding, because that decides what to do about it.
- Compound interest calculatorWork out how much your savings will grow with compound interest and regular contributions, and how much of that total came from interest rather than from you.
Updated on 2026-08-26. Calculations run in your browser; nothing you type is sent to a server.