How extra payments shorten a mortgage
Each month, interest is charged on the remaining balance. Any money you add above the scheduled payment goes straight to principal, so next month's interest is calculated on a smaller balance. The effect compounds: early extra payments save the most because they remove principal that would otherwise accrue interest for decades.
Example
On a $300,000 30-year loan at 6.5% APR, the regular payment is $1,896.20 and total interest is about $382,600. Adding $200 per month pays the loan off in about 23 years 1 month, roughly 6 years 11 months early, and saves about $103,400 in interest.
Before you pay extra
- Check for prepayment penalties in your loan documents.
- Tell your servicer the extra amount is for principal only; otherwise it may be held as an early payment of the next installment.
- Compare the guaranteed return of paying down debt at your rate against other uses of the money, such as an emergency fund or employer retirement match.
Want to compare payment schedules? Try the biweekly mortgage calculator or the lump sum payment calculator.