Prepayment Fees: How Much Do You Need to Save to Make It Worth It?
Paying off a loan early, or refinancing into a lower rate, can save you interest for the rest of the term, but lenders typically charge a prepayment fee in exchange for that flexibility. If the fee costs more than the interest you'd save, you actually come out behind, so it's worth comparing the two numbers rather than paying off a loan on impulse. This calculator takes your loan balance, current and target rates, fee rate, and remaining term, then works out the expected fee and interest savings side by side, along with your net gain and breakeven point. If your loan is still fairly new, the fee rate tends to be higher, pushing the breakeven point further out; as you approach the point where many lenders waive the fee entirely (often around three years), it becomes more attractive to refinance or pay off the balance. This calculation is especially worth revisiting whenever interest rates are falling. Rather than automatically paying off a loan the moment you come into extra cash, running the numbers first is the surest way to actually save on interest over the long run.
How It's Calculated
| Item | Formula |
|---|---|
| Prepayment Fee | Loan Balance × Fee Rate |
| Interest Saved | Loan Balance × (Current Rate - New Rate) × (Remaining Months/12) |
| Net Gain | Interest Saved - Prepayment Fee |
Frequently Asked Questions
It's typically the payoff amount multiplied by a fee rate (commonly 0.5-2%), and many loans lower that rate the longer you've held the loan.
Yes, many loans waive the fee after a set period, often around 3 years, or don't charge one at all. Check your loan agreement to confirm.
A bigger rate difference and longer remaining term make it more worthwhile, but with a short term or small rate gap the fee can outweigh the savings.
※ Actual fees depend on your specific loan product and how long you've held it, so treat this as a rough estimate.