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Why extra payments work
Interest each month is balance × rate ÷ 12. Extra money goes straight to principal, so every later month carries less interest. Early in a loan most of each payment is interest, so extra payments made early save the most.
Interest saved on $320,000 at 6.5% (30 years)
| Extra per month | Interest saved | Paid off sooner |
|---|---|---|
| $50 | $33,799 | 2 years 0 months |
| $100 | $61,698 | 3 years 10 months |
| $200 | $105,429 | 6 years 7 months |
| $300 | $138,446 | 8 years 10 months |
| $500 | $185,552 | 12 years 0 months |
| $1,000 | $251,400 | 16 years 10 months |
Before you prepay
- Check your note for prepayment penalties (rare on modern loans) and tell your servicer the extra is for principal.
- High-rate debt and an emergency fund usually come first.
- Paying down a 6.5% mortgage is a guaranteed 6.5% pre-tax return; compare that with investing.
Sources and assumptions
- Month-by-month amortization; extra payments applied to principal the same month.
Related
Frequently asked questions
How can I pay off my mortgage faster?
Add a fixed amount to each monthly payment, make one extra payment a year, or refinance to a shorter term.
Does paying extra principal reduce my monthly payment?
No. On a standard fixed loan the payment stays the same and the loan ends sooner. Some lenders offer a recast to lower the payment after a large lump sum.
Is it better to pay extra monthly or once a year?
Monthly saves slightly more because principal falls sooner, but the difference is small.