Why extra payments save so much
Mortgage interest is charged on whatever you still owe. Money you pay beyond the scheduled payment goes straight to principal, so it stops costing interest for every remaining month of the loan. On a $320,000 loan at 6.5% over 30 years, paying $200 extra each month cuts 6 years 7 months off the loan and about $105,400 off the interest.
The effect builds on itself. Your required payment stays the same, so when the balance is lower, less of next month’s payment is needed for interest and more of it goes to principal as well. Each extra payment makes the regular payments that follow it work a little harder.
How it works in the calculator
Open Extra payments and enter an amount under “Extra principal every month”. It’s taken off the balance with each payment, starting with the first. The results then show the new payoff time and what you save against the same loan paid exactly as scheduled. That saving counts interest, and also any PMI, tax and insurance you no longer pay once the loan ends early. Extra payments never change the required payment itself; they end the loan sooner.
What different amounts save
On the same $320,000 loan at 6.5% for 30 years, with its $2,022.62 monthly payment:
- $50 extra a month saves about $33,800 in interest and pays off 2 years sooner.
- $100 extra saves about $61,700 and pays off 3 years 10 months sooner.
- $200 extra saves about $105,400 and pays off 6 years 7 months sooner.
- $500 extra saves about $185,600 and pays off 12 years sooner.
The shorter the loan and the lower the rate, the less interest there is to save. On a 15-year version of the same loan, at $2,787.54 a month, $200 extra saves about $21,700 and 19 payments.
When you pay extra matters
A dollar paid early skips more months of interest than a dollar paid late. Here’s a single $5,000 extra payment on that 30-year loan, made at different times:
- With payment 1: saves about $28,300 and 16 payments.
- With payment 60, after 5 years: about $19,500 and 12 payments.
- With payment 120, after 10 years: about $12,900 and 8 payments.
- With payment 240, after 20 years: about $4,500 and 4 payments.
It’s the same $5,000 each time. The difference is simply how many months of interest it stops.
Extra on one particular payment
Most calculators only handle the same extra amount every month. Real life is lumpier: a bonus in March, a tax refund in April, nothing for a while. In the schedule, choose “Pay extra” on any payment to put a one-time amount toward that month. Add as many as you like; each can be changed or removed, and the savings update straight away. One-time extras and an every-month extra work together, so you can model both at once.
Extra payments and PMI
If you put down less than 20% on a conventional loan, extra payments can also end PMI sooner, but only if you ask. The automatic end at 78% follows the original schedule, whatever you’ve paid. Asking to cancel at 80% uses your actual balance, where extra payments count. The CFPB lists the conditions for a request.
Take a $400,000 home with 10% down: a $360,000 loan at 6.5%, $2,275.44 a month plus $150 of PMI at 0.5%. With $200 extra a month the loan ends 6 years 1 month sooner and saves about $108,900 in interest. If you also tick the option to ask for PMI to be removed at 80%, the PMI stops after payment 64 instead of 95, costing $9,600 in all rather than $14,250. The total saving shown rises to about $113,600.
Before you pay extra
- Check your loan has no prepayment penalty, a fee some lenders charge if you pay off all or part of the loan early.
- Tell your lender the extra is for principal, so it isn't held as an early payment.
- Extra payments don't lower your required monthly payment; they shorten the loan. Asking the lender to “recast” after a large lump sum can lower the payment instead, if your lender offers it.
- Money paid into the house is hard to get back out. Compare against other uses for it, like high-interest debt or an emergency fund.
- The results are estimates. Your servicer’s statements show how payments were actually applied.
Common questions
Is it better to pay extra every month or in one lump sum?
For the interest saved, what matters is how much you pay and how early. A lump sum today beats the same total spread over the next few years. A monthly extra may be easier to budget for. Try both here and compare.
How much sooner will I pay off with $100 extra a month?
On a $320,000 loan at 6.5% for 30 years, 3 years 10 months sooner. Enter your own loan to see yours; it depends on the balance, rate and time left.
Will paying extra lower my monthly payment?
No. The payment stays the same and the loan ends sooner, unless your lender agrees to recast the loan.
How do I make sure the extra goes to principal?
Ask your servicer how to mark an extra amount as principal; it may be an option online or on the payment slip. Then check your next statement to see that the balance dropped by the extra amount.
How much extra do I need to pay it off by a certain date?
Use “Pay it off by a date” in the Extra payments section, or the mortgage payoff calculator, which works out the amount to the cent.
Is paying extra the same as paying biweekly?
Biweekly payments are one form of paying extra: about one extra monthly payment a year. The biweekly mortgage calculator compares them. If you’re thinking about a new loan instead, see the refinance calculator.