This explanation assumes your mortgage is “open” which means you can pay off principal, or all of it, at any time without penalty. Open mortgages usually charge a higher interest rate. Personal loans and car loans automatically fall into this category. I strongly advise to always prepay principal along with your regularly scheduled payment, because it makes the mathematics simple and clean. If you prepay in mid month or between regular payments the mathematics becomes **complicated**. If you prepay principal, for an amortized loan or mortgage, each blended payment consists of an interest portion and a principal portion. If you prepay the principal portion of a future blended payment you automatically save the interest portion of that future blended payment.

You can also prepay more than one principal portion. For example, assume a 25 year amortization period. If you prepay the 12 principal portions of the next 12 blended payments for the second year of your amortization schedule, along with your 12th blended payment, you save the 12 interest portions of payments 13 to 24. Your amortization period (time to pay off the loan in full) is then reduced to 23 years. In essence the 2nd year of the amortization schedule disappears. You could actually cut out the second year and tape the remainder of the schedule to the first year part. The payment numbers will be out of wack but the rest of the schedule is mathematically intact and you do not need another amortization schedule. The new principal balance owing is the balance after the 12th normal payment minus the total of the 12 principal prepayments.