Key takeaways
- Extra payments go straight to principal, so every later month is charged interest on a smaller balance.
- The earlier in the loan you start, the bigger the saving, because early payments are mostly interest.
- Check your loan has no prepayment penalty and ask the servicer to apply extra money to principal.
How much difference does the amount make?
For the same $300,000 balance at 6.75% over 30 years (regular payment $1,945.79, total interest $400,486):
- $100 extra: paid off 49 months sooner, saving $65,076.
- $250 extra: paid off 99 months sooner, saving $127,685.
- $500 extra: paid off 151 months sooner, saving $189,871.
The savings are not proportional to the amount because the interest you avoid compounds over the remaining years.
Extra payments vs investing the money
Paying down a 6.75% mortgage gives a guaranteed saving equal to the rate, but the money becomes hard to access. Many planners suggest first building an emergency fund, capturing any employer retirement match and clearing higher-rate debt such as credit cards. After that it is a personal trade-off between certainty and potential investment growth.
Make sure the money counts
Prepayment penalties do not normally apply to small extra principal payments, but the CFPB recommends confirming with your lender. When you pay extra, mark it as principal-only, then check your next statement to see the balance fell by the full amount.
Worked example
$300,000 at 6.75% for 360 months gives a payment of $1,945.79 and total interest of $400,486. Paying $2,195.79 a month instead, the balance reaches zero after 261 payments. Total interest falls to $272,801, a saving of $127,685.
Methodology and sources
The regular payment uses the standard amortization formula. The extra-payment scenario is simulated month by month: interest is charged on the current balance, then the full payment (regular plus extra) is subtracted until the balance is paid. It assumes a fixed rate and the same extra amount every month, and ignores escrow, which does not affect payoff.
Sources: CFPB – What is a prepayment penalty? · Investopedia – Amortization · CFPB – Buying a house
Frequently asked questions
Is it better to pay extra monthly or one lump sum a year?
Paying the same total earlier saves slightly more interest, so monthly extra payments beat one lump sum at year end. The difference is small; consistency matters most.
Does an extra payment lower my monthly payment?
No. On a standard fixed-rate mortgage the required payment stays the same; the loan simply ends sooner. Some lenders offer a recast, re-amortizing the lower balance for a fee, if you want a smaller payment.
Will paying extra remove PMI sooner?
On most conventional loans, yes. Once extra payments bring your balance to 80% of the original value you can ask the servicer in writing to cancel PMI.
What about biweekly payments?
Paying half the payment every two weeks results in 26 half-payments, or 13 full payments a year — roughly one extra payment annually. Adding one-twelfth of a payment each month has a similar effect.
Results are estimates for educational purposes and are not financial advice.