How Extra Mortgage Payments Save Interest
Mortgage interest each month is the rate times the remaining balance. Any extra money applied to principal lowers the balance immediately, so every later month charges less interest and more of each regular payment goes to principal. That is why extra payments early in the loan save the most.
Example: $400,000 at 7% for 30 Years
The monthly principal and interest payment is about $2,661, and total interest over 30 years is about $558,000, more than the amount borrowed. Freddie Mac's survey average for a 30-year fixed loan was 7.28% on October 1, 2026, so this is a realistic example for a new loan.
| Strategy | Paid off in | Interest saved |
|---|---|---|
| No extra payments | 30.0 years | — |
| +$100 a month | 26.8 years | $72,858 |
| +$200 a month | 24.3 years | $126,617 |
| +$222 a month (≈ biweekly payments) | 23.8 years | $136,566 |
| +$300 a month | 22.3 years | $168,391 |
| +$500 a month | 19.3 years | $229,826 |
| $10,000 once at the end of year 1 | 27.8 years | $60,234 |
Early Payoff Strategies
- Extra monthly principal: the simplest option. Tell your servicer to apply the extra to principal, and check your statement to confirm it was.
- Biweekly payments: half a payment every two weeks adds up to 26 half-payments, or 13 full payments a year. That is roughly the same as adding one-twelfth of a payment each month. Some third-party biweekly programs charge fees; you can get the same result yourself for free.
- Lump sums: bonuses, tax refunds or inheritances applied to principal. The earlier, the larger the saving.
- Recasting: after a large lump-sum payment, some lenders will re-amortize the loan for a fee so the monthly payment drops while the rate and end date stay the same. Availability and fees vary by lender and loan type.
Pay Off the Mortgage or Invest?
Paying down a mortgage earns a guaranteed, tax-free "return" equal to its interest rate (less any mortgage-interest deduction you actually use). Investing can earn more or less, with risk. With the default inputs, a 7% mortgage compared with a 7% investment return comes out almost even. In the calculator, $200 a month for 30 years:
- at a 5% investment return, prepaying ends about $62,000 ahead;
- at 7%, the two plans are within about $2,000 of each other;
- at 9%, investing ends about $109,000 ahead, if those returns actually happen.
Things the math above does not capture:
- Liquidity: money in your house is hard to get back out. Investments can be sold, and an emergency fund matters more than a smaller balance.
- Employer match and tax-advantaged accounts: a 401(k) match is usually worth more than prepaying any mortgage. In 2026 the IRS limits are $24,500 for 401(k) employee contributions and $7,500 for IRAs.
- Higher-rate debt first: credit cards and car loans usually cost more than a mortgage.
- Low-rate mortgages: if you locked in a rate near 3%, safe alternatives such as Treasury bills or high-yield savings may already pay more than your mortgage costs.
- Retirement and peace of mind: entering retirement without a mortgage lowers the income you need, which is a reasonable goal even when the math is close.
Common Mistakes
- Not specifying "principal only": otherwise the servicer may treat extra money as an early regular payment.
- Draining your emergency fund to make extra payments.
- Skipping the employer match in order to prepay the mortgage.
- Overlooking prepayment penalties: rare on standard US home loans today, but check your note.