Pay extra on your mortgage and the entire overpayment goes to principal, which shrinks the balance that interest is charged on. Your required payment stays the same, but the loan ends years early. On a $300,000 loan at 6.5%, an extra $200 a month saves about $103,000 in interest and cuts almost 7 years off the term.
Those numbers surprise most people. The savings come from compounding in reverse: every dollar of principal you remove today stops generating interest for decades. You can test your own loan in the free CalcRange mortgage calculator in under a minute.
Below are the exact savings at every level from $100 to $500, plus the one mistake that quietly cancels most of the benefit.
What each extra amount saves
All figures assume a $300,000 loan, a 30 year term, and a 6.5% rate. The required payment on that loan is $1,896 a month for principal and interest.
| Extra per month | New payoff time | Time saved | Interest saved |
|---|---|---|---|
| $100 | 26 years | 4 years | $61,000 |
| $200 | 23 years, 1 month | 6 years, 11 months | $103,400 |
| $300 | 20 years, 10 months | 9 years, 2 months | $135,100 |
| $500 | 17 years, 6 months | 12 years, 6 months | $179,800 |
Notice the curve. The first $100 does the most work per dollar. Going from $300 to $500 still helps, but each additional dollar saves a little less than the one before it, because the loan is already ending sooner.
A higher rate makes every extra dollar more powerful, which is one reason this strategy took off again when rates climbed past 6%.
Why the savings are this big
A standard mortgage loan is amortized, meaning each payment is split between interest and principal on a fixed schedule. Early on, that split is brutal. In year one of the example loan you hand over $22,754 and only $3,353 of it touches the principal. The other $19,401 is interest.
An extra payment skips the split entirely. All of it lands on principal. That rewrites every line of the amortization schedule that follows, since each future interest charge is calculated on a smaller balance. If you want the formula behind that split, our guide on how a mortgage payment is calculated walks through it.
This is also why prepaying is so effective in the first ten years and much less dramatic in the last five. Late in the loan, most of your payment is principal anyway.
A worked example, step by step
Here is month one with an extra $200, using the same $300,000 loan at 6.5%.
Step 1: the monthly interest charge is $300,000 × (6.5% ÷ 12) = $1,625.
Step 2: your required $1,896 payment covers that interest first, leaving $271 for principal.
Step 3: your extra $200 goes straight to principal, so the balance drops by $471 instead of $271. New balance: $299,529.
Step 4: next month’s interest is charged on the smaller balance. You save about a dollar.
A dollar sounds like nothing. But that saving repeats every month for the rest of the loan, and each new $200 adds its own repeating saving on top. Five years in, you have paid $12,000 extra but your balance is $14,135 lower than it would have been. The gap keeps widening until the loan simply runs out of months, 83 of them in this case.
Biweekly payments and lump sums, compared
Biweekly mortgage payments are the classic version of this trick. You pay half your monthly amount every two weeks, and because the year has 26 two-week periods, you end up making 13 full payments instead of 12. On the example loan that one extra yearly payment ends the mortgage just past the 24 year mark and saves about $87,000.
Some lenders charge setup fees for official biweekly plans, which is silly. Adding one twelfth of your payment ($158 here) to each month gets you the same result for free. If your goal is to pay off your mortgage early without refinancing, this is the cheapest route there is.
Lump sums work too. Money paid earlier saves more, so a $2,400 payment in January beats $200 a month spread over the year, though only slightly. If your income arrives unevenly, through an annual bonus or a committee payout if you are in Pakistan, the lump sum route is just as good. Consistency beats optimization here.
Make sure the money actually hits principal
This is the mistake that cancels the benefit. Send your servicer an unlabeled extra $200 and many will treat it as an early chunk of next month’s bill, interest included, or park it in escrow. Nothing compounds in your favor that way.
- Choose the principal-only payment option in your lender’s portal, or write “apply to principal” on the check.
- Check your next statement and confirm the balance fell by the full extra amount.
- Ask once whether your loan has a prepayment penalty. On US loans written after 2014 they are rare, and in India banks cannot charge them on floating rate home loans.
- Keep the extra separate from your regular autopay so it is easy to track.
Two minutes of admin protects tens of thousands of dollars in savings. Worth it.
When paying extra is the wrong move
Credit card debt changes everything. A card charging 22% costs you far more than a 6.5% mortgage saves, so the card dies first. Same logic if you have no emergency fund: cash in the bank beats equity in the wall, because you cannot pull principal back out when the car breaks down.
And if your rate is under 4%, prepaying is honestly a coin flip against investing the difference. Know your true borrowing cost before deciding; our APR vs interest rate guide explains why the sticker rate understates it. Still house hunting? Buying slightly less house does more than any prepayment plan ever will, and our how much house can I afford guide shows where that line sits.
Frequently asked questions
What happens if I pay an extra $200 a month on my mortgage?
An extra $200 a month on a $300,000, 30 year mortgage at 6.5% pays the loan off about 7 years early and saves roughly $103,000 in interest. The extra money goes straight to principal, so every payment after that accrues less interest. Your required monthly payment stays the same.
Is it better to pay extra monthly or make one lump sum payment?
A lump sum paid today saves more interest than the same total spread across a year, because the principal drops sooner. In practice the difference is small, and monthly extras are easier to sustain. Pick the method you will actually stick with, since consistency matters more than timing.
Do biweekly payments really pay off a mortgage faster?
Yes, true biweekly payments squeeze in one extra monthly payment per year, which cuts a 30 year loan by 5 to 6 years at current rates. The catch is that some lenders charge fees for biweekly plans. You can copy the effect for free by adding one twelfth of your payment to each month.
Does paying extra lower my monthly payment or shorten the loan term?
Extra payments shorten the loan term; they do not lower your required monthly payment. The bill stays the same until the balance hits zero, just years sooner. If you want a lower payment instead, you would need to recast or refinance the loan, which most lenders treat as a separate request.
How do I make sure my extra payment goes to principal?
Mark every extra payment as a principal-only payment, either in your lender’s online portal or on the memo line of a check. If you skip this step, many servicers apply the money to next month’s payment, interest included. Check your next statement to confirm the balance dropped by the full amount.
What happens if I make two extra mortgage payments a year?
Two extra payments a year on a $300,000 loan at 6.5% cut the term by roughly 9.5 years and save about $139,000 in interest. That works out to around $316 a month in extra principal. Spreading it monthly or paying it twice a year produces nearly identical results.
The example loan is not your loan. Put your real balance and rate into the free CalcRange mortgage calculator and try a few extra payment amounts. The payoff date moves further than you expect.