What an Extra Mortgage Payment Actually Buys You
An extra $100 a month saves $61,698 of interest and clears the mortgage 3.8 years early. Not because $100 is magic, but because every dollar that comes off the balance stops being charged interest for the entire remaining life of the loan - which on a thirty-year mortgage is a very long time.
What it buys
A $320,000 mortgage at 6.5% over thirty years. The payment is $2,023 a month and the interest over the full term is $408,142 - more than the loan itself.
Now add something on top. From the extra payment calculator:
| Extra each month | Finishes in | Total interest | Interest saved | Years saved |
|---|---|---|---|---|
| Nothing | 30 years | $408,142 | - | - |
| $100 | 26.2 years | $346,444 | $61,698 | 3.8 |
| $200 | 23.4 years | $302,714 | $105,429 | 6.6 |
| $500 | 18.0 years | $222,590 | $185,552 | 12.0 |
$100 a month is $36,000 over thirty years - except you only pay it for twenty-six, so about $31,400. It saves $61,698.
Roughly double your money back, guaranteed, with no market risk.
Why the return is so large
There is no trick, and understanding it makes the decision obvious.
When you pay extra, that money goes straight at the balance. And once a dollar is off the balance, it stops being charged interest for the whole remaining life of the loan.
A dollar paid off in year two at 6.5% does not save you 6.5 cents. It saves 6.5% a year, compounding, for the next twenty-eight years.
That is why early extra payments do so much more than late ones, and why the saving is a multiple of the amount paid rather than a fraction of it.
The mistake that wastes the whole effort
This one is worth being firm about.
Mark every extra payment “principal only”.
If you simply send more money, plenty of lenders apply it to next month’s payment instead of the balance. You have paid ahead rather than paid down. The interest saving is zero.
The check takes a minute: after your first extra payment, look at the statement. The balance should have fallen by your normal principal portion plus the full extra amount. If it has not, ring them.
People have paid extra for years and discovered afterwards it achieved nothing. Do not be one of them.
Paying extra against shortening the term
A 15-year mortgage on the same loan would cost $2,657 a month - $635 more - and save an enormous amount of interest.
But that payment is fixed. In a bad month, in a year with a job loss, it is still $2,657.
Paying extra voluntarily gets you most of the way there while keeping the lower required payment as a safety net. You give up a slightly better rate - shorter terms usually price lower - in exchange for flexibility.
For most households that is the better trade. The 15 vs 30 year calculator shows what the rate difference is worth if you want to weigh it properly.
Where it sits against other uses of the money
Paying off a mortgage is a guaranteed return equal to your rate. At 6.5% that is a good return with no risk whatsoever, and it is not taxed.
But the order matters:
- Emergency fund first. Money in the house is not reachable when the boiler dies.
- Employer retirement match next. A 50% instant return beats 6.5% comfortably - see the 401(k) guide.
- Anything charging more than your mortgage rate. Card debt at 22% is not a close call.
- Then it becomes a genuine choice between paying extra and investing.
At that point it is largely about temperament. A guaranteed 6.5% and a smaller mortgage, or a maybe-better return with risk. Both are defensible.
What to do
- Check whether your loan has an early repayment penalty. Rare, but check.
- Start with any amount. $50 a month is not nothing - the table above scales down.
- Mark it principal only, every time.
- Verify on the next statement.
- Do it early if you can. The same dollar saves more in year two than in year twenty.
Work out what your own extra payment would buy in the extra mortgage payment calculator - it shows the years and the interest each amount saves.
Common questions about extra mortgage payment
How much does an extra payment actually save?
More than most people expect. On a $320,000 mortgage at 6.5% over 30 years, an extra $100 a month saves $61,698 in interest and finishes 3.8 years early. An extra $200 saves $105,429 and finishes 6.6 years early.
Why does a small amount do so much?
Because every dollar that comes off the balance stops being charged interest for the whole remaining life of the loan. A dollar paid off in year two at 6.5% saves 6.5% a year, compounding, for the next twenty-eight years. That is why the saving is a multiple of the amount paid.
Do I have to tell the lender it is extra?
Yes, and this matters. An unmarked extra payment can be applied to next month's payment rather than the balance, which achieves nothing. Mark it principal only, then check your next statement to confirm the balance dropped by the full amount.
Is paying extra better than investing?
Paying off a mortgage is a guaranteed return equal to your rate - 6.5% here, with no risk at all. Investing might beat it and might not. Get the employer retirement match first, because that is a bigger and more certain win, then decide between the two.
Should I pay extra or shorten the term?
Paying extra voluntarily gets most of the same benefit while keeping the lower required payment for a bad month. A shorter term locks in the higher payment with no flexibility. For most people the voluntary version is the safer way to the same place.