Extra Payment Payoff

Every extra dollar you pay goes 100% toward principal, since your regular payment already covers the interest due. Reducing the principal early means every later month accrues less interest, so a bigger slice of every future regular payment goes to principal too — the savings compound, similar to how amortization works in reverse. That's why a modest extra payment saves a disproportionate amount over the life of a long loan.

Three ways to make roughly one extra payment a year, ranked by honesty of the math: pay your monthly payment ÷ 12 as a monthly extra; make one full extra payment each year; or use a biweekly plan, where 26 half-payments add up to 13 full payments — one more than the 12 a monthly schedule makes. All three land in about the same place; pick whichever your budget actually sticks to.

One practical warning: confirm with your servicer that extra money is applied to principal, not held as "next month's payment." Many servicers default to the latter, which saves you nothing. It's usually a checkbox in the payment form or a phone call.

A worked example

Take the defaults: a $300,000 balance at 6.5% with 30 years remaining. The required payment is about $1,896 a month. Adding $200 a month pays the loan off in about 23 years 1 month instead of 30 — saving 6 years 11 months and roughly $103,000 in interest. The chart shows why: the "with extra" balance curve bends down earlier and steeper every year.

Common questions

Should I prepay the loan or invest the difference? It's a trade-off, not a dogma. Prepaying earns you a guaranteed return equal to your loan rate; investing might earn more (historically, diversified stock returns have beaten typical mortgage rates) but with real risk and no guarantee. High-rate debt tilts toward prepaying; low-rate debt tilts toward investing; peace of mind is allowed to count.

Are there prepayment penalties? Rare on modern mortgages and most consumer loans, but they exist — check your note or ask your servicer before starting, especially on older or non-conventional loans.

Does paying extra lower my required monthly payment? No. The required payment stays the same — extra payments shorten the end of the loan rather than shrinking the monthly bill. (A recast or refinance is what lowers the payment.)

This is an estimate assuming a fixed interest rate and no other changes to the loan. Confirm with your lender that extra payments apply to principal, not next month's payment, before relying on this.