Making Extra Mortgage Payments

How Extra Payments Work

When you make an extra payment, that money goes directly to reducing your principal balance. This has a powerful compounding effect: since interest is calculated on your remaining balance, every dollar you pay toward principal reduces the interest charged in all future months. The earlier you make extra payments, the more you save because you're reducing the balance during the highest-interest years of your loan.

• Less interest charged in future months — interest is calculated on a smaller balance
• Faster equity building — you own more of your home sooner
• Earlier payoff date — potentially years ahead of schedule
• More financial flexibility — once paid off, you can redirect that payment to savings or investments

How Much Can You Save?

On a $300,000 loan at 6.5% for 30 years, your standard monthly payment is $1,896. Here's what extra payments can do:

• $100 extra/month: Save $35,000+ in interest, payoff 6 years early
• $200 extra/month: Save $65,000+ in interest, payoff 10 years early
• One extra payment/year: Save $50,000+ in interest, payoff 8 years early
• Double payment each month: Save $200,000+ in interest, payoff 20 years early
• $5,000 lump sum at year 1: Save $25,000+ in interest, payoff 2 years early

The earlier you make extra payments, the bigger the impact. A $5,000 lump sum in year 1 saves far more than the same $5,000 in year 15, because you've avoided 14 years of interest on that amount.

Strategies for Extra Payments

• Biweekly payments: Make half your payment every two weeks. Since there are 26 biweekly periods in a year, you make 13 full payments instead of 12 — effectively one extra payment per year without feeling the pinch. Most lenders offer this option for free.
• Round up: Round your payment to the nearest $100 or $500. A $1,896 payment becomes $2,000 — an extra $104/month that you barely notice but saves thousands over time.
• Annual lump sum: Apply annual bonuses, tax refunds, or other windfalls directly to principal. Even a one-time $2,000 payment in year 1 can save $12,000+ in interest.
• Recurring extra: Set up automatic extra payments through your lender. Even $50/month adds up to $6,000 over 10 years plus all the interest savings.

Use our extra payment calculator to model different scenarios with your actual loan details.

Important Notes

• Specify extra payments go to principal: Tell your lender in writing that extra payments should apply to principal, not future payments. Otherwise, they may apply it to your next scheduled payment, which doesn't save you anything.
• Check for prepayment penalties: Most modern mortgages don't have prepayment penalties, but some older loans or specific products do. Check your loan documents or call your lender.
• Consider other debt first: If you have credit card debt at 20%+ interest, paying that off first gives you a guaranteed 20% return. Mathematically, it's better to pay off high-interest debt before accelerating a 6.5% mortgage.
• Build emergency fund first: Make sure you have 3-6 months of expenses saved before putting extra money toward your mortgage. You can't get that money back if you need it for an emergency.

Extra Payments vs Investing

The decision between extra mortgage payments and investing depends on your risk tolerance and return expectations:

• Guaranteed return: Every extra dollar toward your mortgage saves you 6.5% (or whatever your rate is) in guaranteed interest. There's no investment that offers a guaranteed 6.5% return.
• Potential investment returns: Historically, the stock market has returned about 7-10% annually, but with significant volatility and risk.
• Psychological benefit: Many homeowners sleep better knowing they're paying off their mortgage faster, regardless of what the market might do.
• Tax considerations: Mortgage interest is tax-deductible, which effectively reduces the cost of your mortgage. This can tip the math toward investing for some borrowers in higher tax brackets.

For most homeowners, a balanced approach works well: build an emergency fund, capture any employer 401(k) match, then split extra money between mortgage payments and retirement savings.