1. What Is Mortgage Prepayment?
Mortgage prepayment (or prepaying mortgage) means paying more than your required monthly payment to reduce your loan balance faster. This extra money goes directly toward your mortgage principal, not interest.
When you pay additional principal on mortgage, you're essentially paying off chunks of your loan ahead of schedule. Each dollar you pay toward principal is one less dollar generating interest over the remaining life of your loan.
Prepayments on mortgage reduce your principal balance, which decreases the total interest you'll pay over time. The earlier you start paying extra on mortgage, the more you save.
2. How Does Prepayment Work?
To understand how does prepayment work, you need to know how mortgage interest is calculated. With most mortgages, your monthly payment stays the same, but the split between principal and interest changes over time.
The Front-Loaded Interest Problem
In the early years of your mortgage, the majority of each payment goes toward interest, not principal. Here's how this works with our example loan:
Example Loan: $300,000 at 6.5% for 30 years
Monthly payment: $1,898 (principal + interest)
With this loan, here's how your payments break down:
- First payment: About $1,625 interest, only $273 principal
- After 5 years: Still paying $1,500+ in interest each month
- After 15 years: Finally paying more toward principal than interest
When you make extra principal payments on mortgage, you skip ahead in the amortization schedule. Every extra dollar reduces the balance on which future interest is calculated.
Important Note
Does paying extra principal lower monthly payments? No! Your required monthly payment stays the same. However, paying down principal on mortgage reduces your loan balance, shortens your loan term, and dramatically cuts total interest paid.
3. Real Savings Examples: The Numbers Don't Lie
Let's look at concrete examples to see how much extra principal should i pay on my mortgage and how much does paying extra principal on mortgage help.
Example 1: $100 Extra Per Month
| Loan Details | Without Extra Payment | With $100/Month Extra |
|---|---|---|
| Loan Amount | $300,000 | $300,000 |
| Interest Rate | 6.5% | 6.5% |
| Loan Term | 30 years (360 months) | 25.4 years (305 months) |
| Total Interest Paid | $383,906 | $314,726 |
| Total Savings | — | $69,180 saved! |
Paying $100 more a month on mortgage saves you nearly $70,000 and gets you debt-free 4.6 years earlier!
Example 2: One Extra Payment Per Year
What does one extra mortgage payment a year do? Let's find out with making an extra mortgage payment every year:
| Strategy | Payoff Time | Interest Saved |
|---|---|---|
| Regular payments only | 30 years | $0 |
| 1 extra payment/year | ~25.8 years | ~$67,000 |
| 2 extra payments/year | ~22.5 years | ~$115,000 |
Use our Extra Mortgage Payment Calculator to see your personalized savings.
4. Benefits of Paying Extra on Mortgage
Understanding the benefits of extra mortgage payments helps you decide if this strategy is right for you. The advantages extend far beyond simple interest savings:
Guaranteed Return
Saving 6.5% interest is like earning a guaranteed 6.5% return on your money – risk-free and tax-free. Unlike stock market investments, this return is 100% certain.
Years of Freedom
Even modest extra payments can shave 4-8 years off your mortgage, giving you years of payment-free living and financial flexibility in your prime earning years.
Financial Security
Owning your home outright provides unmatched peace of mind. No matter what happens with your income, you'll always have a roof over your head.
Equity Building
Extra payments accelerate equity building, giving you more borrowing power for future investments or major purchases without taking on high-interest debt.
Retirement Ready
Entering retirement without a mortgage payment dramatically reduces your monthly expenses, allowing you to live comfortably on a smaller retirement income.
Inflation Hedge
Fixed-rate mortgages become cheaper over time due to inflation. Paying them off with today's dollars is often more valuable than tomorrow's inflated currency.
The Compound Effect
The extra mortgage payment benefits compound dramatically over time. A $100 monthly extra payment doesn't just save you $100 – it prevents that $100 from generating interest for the remaining life of your loan. Over 25 years, that single $100 could save you $200-300 in total interest payments.
The psychological benefits are equally powerful. Many homeowners report feeling lighter, more confident, and financially liberated once they eliminate their largest monthly expense. Paying extra toward mortgage principal isn't just a financial strategy – it's an investment in your peace of mind and future flexibility.
5. Smart Prepayment Strategies
There are several ways to approach how to make extra mortgage payments. Choose the strategy that fits your budget and financial situation:
1Monthly Extra Payment
Add a fixed amount to each monthly payment (e.g., paying $100 extra on mortgage each month).
Best for: Those with steady income who can commit to regular extra payments.
2Annual Extra Payment
Make an extra mortgage payment every year, typically from tax refunds or bonuses.
Best for: Those who receive annual bonuses or prefer one large payment.
3Biweekly Payments
Pay half your mortgage every two weeks instead of once monthly (results in 13 full payments per year).
Best for: Those paid biweekly who want automatic extra payments.
4Lump Sum Payments
Lump sum payment on mortgage from inheritance, work bonus, or sale of assets.
Best for: Those with windfall income or irregular large sums.
6. Making One Extra Mortgage Payment Per Year
If I make one extra mortgage payment a year, what happens? This is one of the simplest and most effective strategies.
How to Do It
You have several options for making extra mortgage payment per year:
- Method 1: Add 1/12 of your monthly payment to each regular payment ($1,898 + $158 = $2,056/month)
- Method 2: Make one full extra payment when you receive your tax refund or bonus
- Method 3: Split it into two payments – 2 extra payments a year on mortgage of half your monthly amount
Real Impact
On a $300,000 mortgage at 6.5%, if you make an extra mortgage payment every year, you'll save approximately $67,000 in interest and pay off your loan 4.2 years early. That's a huge return for relatively little effort!
7. Paying Extra Monthly: Small Amounts, Big Impact
Even modest amounts can make a significant difference. Let's explore how will paying extra affect my mortgage with different monthly amounts:
Baseline Loan Assumptions
All calculations in this section are based on:
Regular monthly payment: $1,898
| Extra Monthly Payment | Time Saved | Interest Saved |
|---|---|---|
| $50/month | 2.5 years | ~$38,000 |
| $100/month | 4.6 years | ~$69,000 |
| $200/month | 7.8 years | ~$116,000 |
| $500/month | 13.5 years | ~$186,000 |
If I pay 50 extra on my mortgage every month (making your total payment $1,948 instead of $1,898), it might not seem like much, but over 30 years, that's $38,000 in savings! If you pay 100 extra on my mortgage ($1,998 total monthly payment), you nearly double that savings to $69,000.
Quick Tip
Use our Extra Mortgage Payment Calculator on your phone to experiment with different payment amounts and see your personalized savings instantly.
8. Lump Sum Payments: When Windfalls Meet Your Mortgage
Paying lump sum on mortgage from bonuses, tax refunds, or inheritances can dramatically accelerate your payoff timeline.
Example: $10,000 Lump Sum Payment
Let's say you receive a $10,000 bonus five years into your $300,000 mortgage at 6.5%. Paying off mortgage lump sum of this amount would:
- Reduce your remaining loan term by approximately 1.5 years
- Save you about $18,500 in interest
- Give you nearly a 2:1 return on your $10,000 investment
When to Consider Lump Sum Payments
- Year-end work bonuses
- Tax refunds
- Inheritance or gifts
- Sale of assets (stocks, second property, etc.)
- Unexpected financial windfalls
For mortgage lump sum payments, make sure to specify that the payment should go toward principal, not just advance your due date.
9. Should You Pay Principal or Interest First?
A common question: is it better to pay principal or interest first?
The Short Answer:
You must pay interest first – that's how mortgage contracts work. Your regular monthly payment covers the interest due plus some principal. Any extra mortgage payment to principal goes entirely toward reducing your loan balance.
Understanding the Distinction
When people ask extra mortgage payment to principal or interest, what they really mean is: "Where should my extra payment go?" The answer is always principal.
Here's why paying principal on mortgage is powerful:
- Principal payments directly reduce your loan balance
- Lower balance = less interest charged each month
- Each dollar toward principal has a compounding effect on interest savings
Pro Tip
When making additional principal payment mortgage, always specify "apply to principal" on your payment. Some lenders might otherwise treat it as an advance payment, which doesn't save you interest.
Does paying principal lower monthly payment? No, but it does something better – it reduces your total loan term and saves you massive amounts of interest.
10. When Does It Make Sense to Pay Off Mortgage Early?
Should i pay extra on my mortgage? Not everyone should prioritize paying off my mortgage early. Here's when it makes sense:
Good Candidates for Extra Payments
- High interest rate: If your mortgage rate is 6%+, prepaying mortgage offers excellent guaranteed returns
- No high-interest debt: You've already paid off credit cards and personal loans
- Emergency fund established: You have 3-6 months of expenses saved
- Maxing retirement: You're contributing enough to get your full employer 401(k) match
- Peace of mind: The psychological benefit of being debt-free is valuable to you
- Nearing retirement: You want to enter retirement mortgage-free
When to Prioritize Other Goals
- Low interest rate: If your rate is below 4%, investing elsewhere might yield better returns
- High-interest debt: Pay off credit cards (15-25% interest) before extra mortgage payments
- No emergency fund: Build 3-6 months of expenses first
- Missing 401(k) match: That's free money – don't leave it on the table
- Better investment opportunities: If you can reliably earn 8-10% in index funds
The Bottom Line
Is it smart to pay extra principal on mortgage? It depends on your complete financial picture. Use our Mortgage Calculator alongside the Extra Payment Calculator to compare scenarios.
11. Important Considerations Before You Prepay
Liquidity Matters
Once you pay additional principal, that money is locked in your home. You can't easily access it unless you:
- Refinance (costs money and takes time)
- Get a home equity loan (new debt with interest)
- Sell your home
Opportunity Cost
Money used for mortgage prepayment can't be invested elsewhere. If your mortgage rate is 6.5% but you could earn 10% in the stock market, you might be better off investing. However, mortgage payoff is guaranteed and risk-free.
Tax Deduction Impact
Paying mortgage early means less mortgage interest to deduct. However, with the standard deduction at $29,200 (2025, married filing jointly), most homeowners don't itemize anyway, so this is rarely a concern.
Partial Payments
Can I make partial payments on my mortgage? Most lenders accept partial extra payments. Even paying 50 extra on my mortgage or any amount helps – there's no minimum.
12. Prepayment Penalties and Early Payoff Charges
Before you start repay mortgage early, understand the fees to pay off mortgage early.
What Are Prepayment Penalties?
Some lenders charge fees for paying off mortgage early charges. These penalties typically:
- Apply only during the first 3-5 years of the loan
- Range from 2-5% of the outstanding balance
- Are less common on conventional mortgages
- May not apply to small extra payments (often you can prepay up to 20% annually penalty-free)
Check Your Loan Documents
Review your mortgage paperwork or call your lender to ask about prepayment restrictions. Most modern conventional loans have no penalties, but it's always worth confirming before making large extra payments.
Frequently Asked Questions
Can you make extra mortgage payments?
Yes! Most lenders allow and encourage extra payments. Just make sure to specify that extra payments should be applied to principal, not just advance your due date.
Does paying extra on mortgage reduce interest?
Absolutely! Every dollar you pay toward principal reduces your balance, which means less interest accrues in future months. This compounds dramatically over time, potentially saving you tens of thousands.
How much does extra payment shorten my mortgage?
It varies based on your loan amount, rate, and extra payment size. Generally, one extra payment per year shortens a 30-year loan by 4-5 years. Use our extra payment calculator to see your exact savings.
Will my mortgage payment go down if I pay extra?
No, your required monthly payment stays the same. However, you'll pay off the loan faster and save on interest. Extra payments reduce your loan term, not your monthly obligation.
What happens if I pay double my mortgage payment?
If you double your mortgage payment every month, you'll pay off a 30-year loan in roughly 8-10 years (depending on your rate) and save hundreds of thousands in interest. It's one of the fastest ways to become mortgage-free.
Should I pay extra principal or invest the money?
This depends on your mortgage rate vs. potential investment returns. If your rate is 6%, paying extra principal guarantees a 6% "return" by avoiding interest. Compare this to expected investment returns and your risk tolerance.
Are there penalties for paying off my mortgage early?
Most modern conventional loans have no prepayment penalties, but some loans may charge fees during the first 3-5 years. Check your loan documents or contact your lender to confirm before making large extra payments.
How often can I make extra mortgage payments?
You can make extra payments as frequently as you want – monthly, quarterly, annually, or whenever you have extra funds. There's typically no limit on how much extra you can pay (unless you have prepayment penalties).
What's the difference between refinancing and paying extra principal?
Refinancing gets you a new loan (hopefully at a lower rate) but costs money upfront. Paying extra principal keeps your current rate but reduces the loan balance faster. Use our refinance calculator to compare both options.
How to Make Extra Mortgage Payments: Step-by-Step
Ready to start saving? Here's how to make extra principal payment on mortgage:
- 1
Check for Prepayment Penalties
Review your loan documents or contact your lender to confirm there are no restrictions.
- 2
Decide on Your Strategy
Choose monthly extra amounts, annual payments, or lump sums based on your budget.
- 3
Calculate Your Potential Savings
Use our Extra Mortgage Payment Calculator to see exactly how much you'll save.
- 4
Specify "Principal Only"
When making payments, clearly indicate that extra amounts should be applied to principal, not just advance your due date.
- 5
Set Up Automatic Payments
Many lenders allow you to set up recurring extra payments – automate it and forget it!
- 6
Monitor Your Progress
Check your mortgage statements to verify extra payments are being applied correctly and track your declining balance.
- 7
Adjust as Needed
Your financial situation may change. It's okay to stop, reduce, or increase extra payments based on your circumstances.
Potential Downsides: Cons of Paying Off Mortgage Early
While there are many benefits, it's important to understand the cons of paying off mortgage early:
- Opportunity cost: Money in your house can't be invested in potentially higher-return opportunities
- Reduced liquidity: Home equity isn't easily accessible in emergencies
- Lower tax deductions: Less mortgage interest to deduct (though this rarely matters with today's standard deduction)
- Potential prepayment penalties: Some loans charge fees for early payoff
- Neglecting other goals: Focusing too much on mortgage payoff might mean under-investing in retirement
Balance is key. Consider your complete financial picture before aggressively paying towards mortgage principal.
Average Time to Pay Off a Mortgage
Wondering about the average time to pay off a mortgage? Here are the statistics:
- Traditional payoff: 30 years for a standard 30-year mortgage (obviously)
- Actual average: Most homeowners pay off their mortgage in 10-15 years due to moving, refinancing, or extra payments
- With extra payments: 20-26 years with modest extra payments
- Aggressive payoff: 10-15 years with substantial extra payments
Take Action Today: Start Saving Tomorrow
You now understand how does extra payments affect my mortgage, the impact of extra payments on mortgage, and the effect of extra payments on mortgage over time. The question is: what will you do with this knowledge?
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The Bottom Line on Extra Mortgage Payments
Prepaying mortgage is one of the most powerful wealth-building strategies available to homeowners. Whether you're paying 100 extra on mortgage monthly, making 2 extra mortgage payment a year, or putting windfalls toward mortgage lump sum payments, you can save tens of thousands of dollars and achieve financial freedom years earlier.
The key is to start now. Even paying $50 more a month on mortgage makes a meaningful difference over time. The earlier you begin making extra principal payments on mortgage, the more dramatic the mortgage principal reduction and interest savings.
Use our calculators to find your optimal strategy, check for prepayment penalties, and start building wealth through mortgage prepayments today. Your future debt-free self will thank you.