How extra payments shorten a mortgage
Each month, your lender charges interest on whatever you still owe. On a fixed-rate loan the required payment never changes, but the split inside it does. Early on, most of each payment covers interest and only a small slice reduces the balance.
Extra money you send toward principal skips the interest step and comes straight off the balance. A smaller balance means less interest next month, so more of your regular payment goes to principal, and that effect repeats every month after. That is why fairly small extra payments can take years off a loan.
In numbers
On a $350,000 loan at 7% for 30 years, the first payment of $2,328.56 sends $2,041.67 to interest and only $286.89 to the balance. Over the whole first year you would pay about $24,387 in interest and reduce what you owe by about $3,555.
A worked example
Here is the same $350,000 loan at 7% for 30 years, with a regular payment of $2,328.56, under a few different extra-payment plans.
| Plan | Paid off after | Total interest | Interest saved |
|---|---|---|---|
| No extra payments | 30 yrs | $488,280 | — |
| $100 extra each month | 26 yrs 4 mo | $416,978 | $71,302 |
| $250 extra each month | 22 yrs 6 mo | $345,664 | $142,616 |
| One extra payment each year | 23 yrs 9 mo | $368,408 | $119,872 |
| $10,000 once, after 1 year | 27 yrs 7 mo | $429,138 | $59,142 |
| $10,000 once, after 15 years | 29 yrs 1 mo | $470,837 | $17,443 |
The last two rows show why timing matters. The same $10,000 saves more than three times as much interest when it goes in early, because it has more years in which it isn't being charged interest.
Figures use this calculator's method (described below) and are rounded to the nearest dollar.
How this calculator works
The regular monthly payment comes from the standard amortization formula used for fixed-rate loans:
Here P is the loan balance, r is the annual interest rate divided by 12, and n is the number of monthly payments left. Then the calculator steps through the loan one month at a time:
- Interest for the month is the balance times r, rounded to the cent.
- The rest of the regular payment reduces the balance.
- Any extra payment comes off the balance in the month you make it, after the regular payment.
- The final payment is only as large as needed to reach zero.
Results cover principal and interest only. Property taxes, homeowners insurance, mortgage insurance and HOA dues are left out because extra payments don't change them. The calculator assumes a fixed rate, so it won't model an adjustable-rate loan after its rate resets. Your servicer may calculate interest slightly differently or post extra payments on a different day, so treat these results as close estimates.
Should you pay off your mortgage early?
There isn't one right answer. It depends on your rate, your other debts and how much flexibility you want with your cash.
It can make sense when
- Your mortgage rate is higher than what you could reliably earn on safe savings.
- You already have an emergency fund and no higher-rate debt.
- You want lower fixed costs before retirement or a career change.
- You value a guaranteed saving over uncertain investment returns.
It may be better to wait when
- You carry credit card or other debt at a higher rate.
- Your emergency savings are thin. Money in your home is hard to get back without selling or borrowing.
- You aren't yet getting the full employer match on a retirement plan.
- Your mortgage rate is low compared with what safe savings pay.
This page offers general information, not financial advice. A fee-only financial planner can look at your whole situation.
Before you make extra payments
- Check for a prepayment penalty. Many mortgages today don't charge one, but read your loan documents or ask your servicer to be sure.
- Tell your servicer the money is for principal. Use the "additional principal" field when you pay online, or include a note with a check. Otherwise the money may be held and applied as an early regular payment.
- Confirm it on your next statement. Your principal balance should drop by the full extra amount.
- Keep making your regular payment. Extra principal usually doesn't let you skip or shrink future payments.
- Be careful with paid biweekly programs. Some charge setup or processing fees for something you can do yourself for free.
- Paying PMI? Extra principal can also let you cancel it sooner. The PMI removal calculator shows when.
Ways to fit in extra payments
- Round up. Paying $2,500 instead of $2,328.56 adds about $171 a month without much thought.
- Make one extra payment a year. Add one-twelfth of your payment each month (about $194 in the example) or send one full payment once a year.
- Pay biweekly. Half a payment every two weeks adds up to 26 half-payments, or 13 full payments, a year. The biweekly mortgage calculator shows what that does for your loan.
- Use windfalls. Tax refunds, bonuses and part of each raise can go toward principal.
- Recast after a large lump sum. Some lenders will recalculate your monthly payment based on the lower balance, usually for a fee. This lowers your payment instead of moving your payoff date.
Questions people ask
Does paying an extra $100 a month make a difference?
Yes. On a $350,000 loan at 7% over 30 years, an extra $100 a month pays the loan off about 3 years and 8 months sooner and saves roughly $71,000 in interest. Starting earlier makes the effect larger.
Is one large payment better than smaller monthly ones?
Timing matters more than the form the payment takes. Money paid earlier saves more because it stops interest sooner. In the example above, $10,000 paid after one year saves about $59,000, while the same amount after 15 years saves about $17,000. Spreading a yearly amount across monthly payments is slightly better than paying it all at year end, because each piece arrives sooner.
Will my monthly payment go down if I pay extra?
Usually not. On a fixed-rate loan, your required payment stays the same and the loan simply ends sooner. If you would rather have a lower payment, ask your lender whether it offers a recast.
Do biweekly payments really help?
Paying half your payment every two weeks works out to 13 full payments a year instead of 12, which is the same as making one extra payment a year. You can model it here by entering one-twelfth of your payment as an extra monthly amount, or compare both side by side with the biweekly mortgage calculator. Check that your servicer applies half-payments when they arrive rather than holding them.
Should I pay extra or refinance?
They solve different problems. Refinancing replaces your loan, can lower your rate and comes with closing costs. Extra payments cost nothing to start and can stop at any time. If market rates have dropped well below yours, it is worth comparing both.
Does paying off a mortgage early hurt your credit?
Closing a loan can cause a small, usually temporary change in your credit score, because the account no longer counts as active credit. For most people this matters far less than the benefit of having no mortgage payment.
What happens to my escrow account after payoff?
Your servicer closes the escrow account and refunds any money left in it. From then on, you pay property taxes and homeowners insurance yourself, so set those amounts aside.
How accurate is this calculator for my loan?
It uses the standard method lenders use for fixed-rate loans, so results should be close. Small differences can come from how your servicer rounds, whether it charges interest daily, and when extra payments post. For an exact figure, ask your servicer for a payoff statement.
