Enter the original loan details and additional principal payments into the calculator to see how principal curtailment affects overall repayment.

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Principal Curtailment Formula

The following equation is used to calculate the Principal Curtailment.

PC = OP - NP
  • Where PC is the principal curtailment ($)
  • OP is the original principal ($)
  • NP is the new principal ($)

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.

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?

It can, depending on how your lender applies payments and whether they recast (recalculate) your monthly payment schedule. In many cases, you can continue making the same payment and simply pay off the loan sooner.

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?

By lowering 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.