Making extra payments on your mortgage is one of the most powerful financial moves a homeowner can make. Even small additional amounts each month can save you tens of thousands of dollars over the life of your loan. Here's exactly how it works.
How mortgage payments work
When you make your regular monthly mortgage payment, it's split between interest and principal. In the early years of a mortgage, the vast majority of each payment goes toward interest — not toward actually paying down what you owe.
On a $300,000 mortgage at 6.8% for 30 years, your first payment of about $1,957 includes roughly $1,700 in interest and only $257 going toward your balance. That ratio gradually shifts over time.
What extra payments do
Any extra money you pay goes directly toward your principal balance. This has a compounding effect — a lower balance means less interest charged the following month, which means more of your regular payment goes toward principal, and so on.
Adding just $200 extra per month to a $300,000 mortgage at 6.8% saves over $80,000 in interest and pays off the loan 6 years early.
Ways to make extra payments
- Monthly extra — add a set amount to every payment, even $50 or $100 makes a meaningful difference
- Biweekly payments — pay half your monthly amount every two weeks instead of once a month, which results in one extra full payment per year
- Annual lump sum — apply a tax refund, bonus, or other windfall directly to your principal once a year
- Round up — if your payment is $1,843, pay $1,900 every month — simple and painless
Important things to check first
Before making extra payments, make sure:
- Your lender applies extra payments to principal — some require you to specify this or they apply it to future payments instead
- Your mortgage has no prepayment penalty — most modern mortgages don't, but it's worth checking
- You've paid off higher-interest debt first — credit cards at 20% should be paid before a mortgage at 6%
- You have an emergency fund in place — liquid savings are more valuable than a paid-down mortgage in a crisis
The bottom line
Extra mortgage payments are one of the safest investments you can make. The return is guaranteed — equal to your interest rate — and the savings compound over decades. Even modest extra payments made consistently can dramatically reduce the total cost of your home.