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How extra payments shorten a mortgage

A little more each month comes off the balance, and the balance is what interest is charged on.

Reviewed by Victor Yuki Matusita on . First published .

Paying more than the required mortgage payment does not lower the payment; it ends the loan sooner. Every extra dollar goes straight to principal, so every later month charges interest on a smaller balance. Those savings repeat for the rest of the loan, which is why a modest extra amount can take years off a 30-year mortgage.

This guide measures the effect on one loan with the engine of the calculator below: $300,000 at an example rate of 6.5% for 30 years, with a regular payment of $1,896.20 in principal and interest. Without extra payments it runs 30 years and charges $382,637 of interest.

Try an extra payment

The calculator starts from the example of this guide, with $200 extra every month. Every number in the text below comes from the same engine.

$
%
$

Interest saved

$103,450

With the extra payments the loan is paid off in 23 years 1 month instead of 30 years, 6 years 11 months sooner, and you save $103,450 of interest.

  • Principal $300,000 · 52%
  • Interest with extra payments $279,187 · 48%

Loan term, more extra payments and costs

years
$

Paid with every 12th payment.

$
$
$
$

Private mortgage insurance, usually asked with less than 20% down.

$
Without extra payments
Interest
$382,637
Paid off in
30 years
Total paid
$682,637
With extra payments
Interest
$279,187
Paid off in
23 years 1 month
Total paid
$579,187

B pays the loan off 6 years 11 months sooner and saves $103,450 of interest.

Open the mortgage calculator with extra payments on its own page

Schedule with extra payments

A fixed extra every month

Adding $200 to every payment pays the loan off in 23 years 1 month instead of 30 years: 6 years 11 months sooner. The interest saved is $103,450.

The required payment never changes. The extra lowers the balance a little more each month, so the share of the regular payment that goes to interest shrinks faster, and the last payment arrives years early.

Once a year instead of every month

Some people prefer one larger extra payment a year, from a tax refund or a bonus. Paying $2,400 once a year, the same amount as $200 a month, pays the loan off 6 years 9 months sooner and saves $99,672 of interest.

That is a little less than the monthly extra saves, because part of the money waits until the end of each year before it starts lowering the balance. The difference is small; what matters most is the total you add and how early you add it.

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Early money works hardest

A single extra payment of $10,000 with payment 12, at the end of the first year, saves $50,230 of interest and ends the loan 2 years 7 months sooner. The same $10,000 with payment 240, twenty years in, saves $8,668 and ends it 9 months sooner.

Early in the loan the balance is large and most of each payment is interest, so a dollar of principal removed then stops interest from building for the longest time.

Extra payments and PMI

If you put less than 20% down on a conventional loan, you probably pay private mortgage insurance. The CFPB explains that you can ask to cancel it once the balance reaches 80% of the home’s original value, and that it ends on its own at 78% of the original value on the regular schedule. Extra payments bring the balance down to 80% sooner, so you may be able to ask for the cancellation earlier; the automatic end at 78% follows the original schedule, not your extra payments.

Keep the schedule the calculator gives you. It shows the balance at the end of each year, so you can see when it crosses 80% of the original value and make the request in writing.

Before you pay extra

Ask your servicer to apply the extra to principal, not to the next payment. Check whether the loan has a prepayment penalty: the Loan Estimate and the Closing Disclosure say so. Many borrowers first build an emergency fund and pay off debts with a higher rate than the mortgage, since a dollar there saves more interest.

If you would rather keep the flexibility of the lower payment, extra payments on a 30-year loan are a middle path between the 30-year and the 15-year terms: you can stop paying extra in a hard month.

What each extra amount does

The same $300,000 loan at 6.5% for 30 years, with a different fixed extra added to every monthly payment.

Time to pay off, time saved and interest saved by extra amount per month
Extra per monthPaid off inSooner byInterest saved
$5027 years 10 months2 years 2 months$33,583
$10026 years4 years$60,996
$20023 years 1 month6 years 11 months$103,450
$50017 years 6 months12 years 6 months$179,762
$1,00012 years 9 months17 years 3 months$241,165

Worked out with the engine of this site on , month by month in cents. The rate is an example.

The formula

The regular payment is M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), with r the yearly rate divided by 12 and n = 360. Each month: interest = balance × r, rounded to the cent; payment = M + the extra of that month; the balance falls by payment − interest.

Months saved = payments without the extra − payments with it. Interest saved = interest without the extra − interest with it.

Assumptions

  • A fixed-rate loan with no prepayment penalty; every extra payment goes to principal the month it is paid.
  • The extra once a year is paid with every 12th payment.
  • Taxes, insurance and PMI are left out: extra payments do not change them.

Worked example

Loan of $300,000 at 6.5%, payment $1,896.20. With $200 extra a month: paid off in 23 years 1 month instead of 30 years, $103,450 of interest saved.

Sources

Educational guide

This guide is educational, not financial advice. Your loan contract says how extra payments are applied.