How Extra Mortgage Payments Save Interest

Most of a mortgage payment goes to interest in the early years. Because interest is charged on the remaining balance, every extra dollar that reduces principal early stops earning interest for the rest of the loan.

A worked example

Take a $250,000 balance at 6.5% with 25 years left. The standard payment is about $1,688 per month. Adding $200 per month in extra principal would, by our Mortgage Payoff Calculator, finish the loan about 5 years and 6 months sooner and save roughly $64,900 in interest.

Before you pay extra

• Confirm there is no prepayment penalty and that extra money is applied to principal.
• Keep an emergency fund and pay off higher-rate debt (such as credit cards) first.
• Compare the guaranteed return of paying down your mortgage with what you might earn elsewhere.
• If your rate is much higher than today's rates, a refinance may help more than extra payments.

Ways to pay extra

Options include adding a fixed amount monthly, making one extra payment per year, or applying bonuses and tax refunds as lump sums. Even small amounts matter early in the loan.