Calculate how a principal curtailment (extra principal payment), monthly, yearly or one time, cuts mortgage interest and payoff time, or your new balance.
Principal Curtailment Formula
The following equation is used to calculate the Principal Curtailment.
- Where PC is the principal curtailment ($)
- OP is the outstanding principal immediately before the extra principal payment ($)
- NP is the principal immediately after that extra payment ($), excluding other simultaneous balance changes
To calculate principal curtailment, subtract the new principal from the original principal. When additional payments are applied toward the principal, the total amount owed decreases more quickly, reducing interest costs over time.
For the principal and interest portions of each regular monthly payment, use the Loan Calculator with Interest and monthly amortization schedule. Enter the loan balance, annual note rate and remaining term, or select Loan term if you know the monthly principal-and-interest payment. Taxes, insurance and escrow are excluded.
What is a Principal Curtailment?
Definition:
A principal curtailment is any additional or early payment applied directly to the outstanding principal balance of a loan. This strategy can reduce the total amount of interest paid and potentially shorten the repayment schedule by lowering the remaining balance faster than the baseline repayment plan.
How to Calculate Principal Curtailment?
Example Problem:
The following example outlines the steps and information needed to calculate the Principal Curtailment.
First, determine the original principal balance of the loan. In this example, the original balance is $200,000.
Next, specify the extra amount paid toward the principal. Here, an additional payment of $5,000 is made early.
This results in a new principal balance of $195,000.
Finally, calculate the principal curtailment using the formula above:
PC = OP – NP
PC = $200,000 – $195,000
PC = $5,000
FAQ
Does making a principal curtailment lower monthly payments?
An extra principal payment does not automatically reduce the contractual monthly payment. A lender-approved recast may reduce it. This calculator keeps the regular principal-and-interest payment unchanged and estimates an earlier payoff instead.
Are there any prepayment penalties for early principal payments?
Some loans include prepayment penalties that may apply if you pay off part of the principal ahead of schedule. Always check your loan agreement to confirm any potential fees.
How does principal curtailment help reduce interest?
If you lower your outstanding principal balance sooner, less interest accumulates over time. Consequently, more of each subsequent payment can go toward the principal rather than interest, effectively reducing the total interest paid over the life of the loan.
