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Why Extra Payments Are So Powerful
Every extra dollar you pay goes directly to principal — reducing the balance on which interest is calculated next month. This compounding effect is dramatic over decades.
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Years Off Your Loan
Adding $200/month extra to a $320K loan at 6.5% cuts over 6 years off your mortgage. That's 6 years of payments you never have to make — worth over $100,000.
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Monthly vs Lump Sum
A consistent monthly extra payment beats a one-time lump sum of the same total value — because it reduces principal earlier, saving more interest over time.
How Mortgage Extra Payments Work
When you make an extra payment on your mortgage, every single dollar goes directly toward reducing your principal balance — not toward interest. This matters enormously because your monthly interest charge is calculated as a percentage of your remaining balance. Lower balance = lower interest charged next month = more of your regular payment going to principal. It's a powerful accelerating cycle.
Should You Make Extra Payments or Invest Instead?
This is the most common question. The answer depends entirely on your mortgage rate vs your expected investment return. If your mortgage rate is 6.5% and the stock market historically returns 7–10%, investing is technically better on paper. But paying down your mortgage is a guaranteed, risk-free 6.5% return. For risk-averse homeowners, extra mortgage payments are one of the best financial moves available.
FAQ
Do extra payments automatically go to principal?
Not always. You must tell your lender to apply extra payments to principal, not toward next month's payment. Write "apply to principal" on your check or specify it in your online payment portal. Otherwise the lender may just apply it as a regular payment.
Is there a prepayment penalty?
Most modern mortgages don't have prepayment penalties, but some do — especially adjustable-rate mortgages. Check your loan agreement before making large extra payments.
What's better: extra monthly payments or biweekly payments?
Biweekly payments (paying half your monthly payment every two weeks) result in one extra full payment per year. This is similar to making one lump-sum extra payment annually. Use our calculator to compare both scenarios.