Making extra payments toward your mortgage is one of the smartest ways to save money over time. In this post, we’ll break down how extra payments work, the impact they have on your amortization schedule, and how much you can potentially save in interest.

What are extra payments on a mortgage?

When you make your monthly mortgage payment, it includes two parts: interest (the cost of borrowing) and principal (the amount you borrowed). Any payment above your scheduled monthly payment is considered an extra payment, and when applied correctly, it reduces your loan’s principal balance.

These payments can come in different forms:

• Recurring monthly overpayments
• Annual lump sum payments (e.g., from a tax refund or bonus)
• Occasional one-off payments

The key benefit of extra payments is that they lower the balance on which interest is calculated, which in turn helps you save money and pay off your loan faster.

How extra payments affect your amortization schedule

Every mortgage comes with an amortization schedule, which outlines how much of each monthly payment goes toward interest and how much goes to principal. In the early years, most of your payment goes toward interest. But when you make extra payments toward the principal, you disrupt that pattern in your favor.

When you make extra payments, you:

1. Reduce your principal faster: Each extra dollar paid against principal immediately lowers your remaining balance. This means future interest calculations are based on a smaller balance.
2. Shorten your loan term: As you pay down your loan more quickly, you finish your mortgage earlier than the original term.
3. Save thousands in interest: Less interest is charged over time, which can lead to tens of thousands in savings depending on your loan size and rate.

Real-life example: The impact of extra payments

Let’s take a typical 30-year fixed mortgage:

• Loan amount: $300,000
• Interest rate: 6%
• Monthly payment (principal + interest): $1,799
• Total interest over 30 years: $347,515

Now, let’s add a $200 monthly extra payment to principal:

• New payoff time: ~24 years (loan paid off six years earlier)
• Total interest paid: ~$267,000
• Interest savings: ~$80,000

Even just $100 extra per month can result in major savings and a much shorter loan term.

Types of extra payment strategies

Depending on your financial situation and goals, there are several ways to incorporate extra payments:

#1: Monthly principal additions

Adding a set amount — like $50, $100, or $200 — to your monthly mortgage payment is one of the easiest and most effective strategies. This is great for people who want consistency.

#2: Biweekly payments

Instead of paying monthly, you pay half of your mortgage payment every two weeks. Because there are 52 weeks in a year, this results in 13 full payments per year instead of 12, effectively making one extra payment annually.

#3: Annual lump-sum payments

If you receive a tax refund, work bonus, or other windfall, you can make a one-time extra payment. Even one extra payment per year can reduce your loan term significantly.

#4: Occasional one-off payments

Not ready for a structured plan? No problem. Any time you have spare cash, throw it at your mortgage. Every bit helps.

Common mistakes to avoid when making extra payments

To get the most benefit from extra payments, avoid these common pitfalls:

#1: Not specifying payment application

When you make an extra payment, make sure to instruct your lender to apply it to the principal, not to future interest or future payments. This ensures it reduces your balance immediately.

#2: Assuming all lenders allow prepayment

While many modern mortgages don’t have prepayment penalties, some still do — especially older loans or certain subprime mortgages. Check your loan terms or ask your lender directly.

#3: Paying too much and compromising liquidity

It’s smart to pay down debt, but don’t do it at the expense of your emergency fund or other financial obligations. Balance your mortgage strategy with savings and investments.

The psychological benefits of extra payments

Beyond the math, there are emotional and psychological benefits to making extra payments:

• Peace of mind: Knowing you’re ahead of schedule can reduce financial stress.
• Homeownership pride: You’ll build equity faster and feel more ownership of your home.
• Financial flexibility: Paying off your mortgage early can free up future income for travel, retirement, or investing.

When NOT to make extra payments

While extra payments are a great tool, they’re not right for everyone in every situation. Here are a few reasons to hold off:

• You have high-interest debt like credit cards or personal loans. Pay those off first.
• Your employer offers 401(k) matching that you're not maximizing. Take the free money.
• You don’t have a rainy-day fund (3–6 months of expenses). Build savings first.

It’s about making sure your money is working hardest for you.

Making extra payments work for you

Making extra payments on your mortgage is one of the simplest, most effective ways to save money, build equity faster, and reach financial freedom sooner. Whether you commit to an extra $50 a month or make occasional lump-sum contributions, the long-term payoff is huge.

While most people can’t make big extra payments on a regular basis, knowing how to use extra payments puts you in the driver’s seat with your mortgage. 

If you’re currently house-hunting, getting even an incrementally lower interest rate helps to lower your monthly payments. That increases the likelihood that you’ll be able to make extra payments at some point in the future.

To see what the current rate environment is like and get a feel for what that would mean for your monthly payments, use our mortgage rate comparison tables. Like knowing about extra payments, knowing about current rates puts you in a good position to set yourself up for success. You can compare what lenders offer against the average, helping you pinpoint the best rate to get into your future home. 

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