Paying $100, $200 or $500 Extra on Your Mortgage: How Much You Save
Adding a little to each mortgage payment is one of the most common ways to get out of debt sooner, but "a little" is vague. This guide puts numbers on it for a typical new home loan, so you can see what $100, $200 or $500 a month actually buys you. All figures come from our mortgage payoff calculator; run it with your own balance and rate for an exact answer.
The example loan
- Loan amount: $300,000
- Interest rate: 6.5% fixed
- Term: 30 years (360 monthly payments)
- Regular principal and interest payment: $1,896.20 a month
- Total interest if you never pay extra: $382,633.47
Property tax, insurance and PMI are left out because extra payments do not change them.
Monthly extra payments compared
| Extra each month | New monthly total | Paid off in | Time saved | Interest saved |
|---|---|---|---|---|
| $0 | $1,896.20 | 30 years | — | — |
| $100 | $1,996.20 | 26 years | 4 years | $60,994.79 |
| $200 | $2,096.20 | 23 years 1 month | 6 years 11 months | $103,448.79 |
| $500 | $2,396.20 | 17 years 6 months | 12 years 6 months | $179,759.08 |
| $1,000 | $2,896.20 | 12 years 9 months | 17 years 3 months | $241,162.07 |
The first dollars do the most work. $100 a month, about 5% more than the regular payment, removes four whole years. Each further $100 still saves money, but the time saved per dollar shrinks because the loan is already shorter.
Why a small extra amount saves so much
Early in a 30-year loan, most of each payment is interest. In the first month of this loan, interest is $300,000 × 6.5% ÷ 12 = $1,625, so only $271.20 of the $1,896.20 payment reduces the balance. An extra $100 increases that month's principal reduction by more than a third. Every dollar of principal you remove early stops being charged 6.5% interest for the rest of the loan, and the savings compound month after month.
Late in the loan the picture reverses: most of the payment is already principal, so extra payments in the last few years save comparatively little interest.
One extra payment a year (the biweekly effect)
Paying half the mortgage every two weeks gives 26 half-payments, which equals 13 full payments a year instead of 12. You get the same effect by adding one-twelfth of the payment each month: $1,896.20 ÷ 12 ≈ $158.
- Extra $158 a month: paid off in 24 years 2 months, 5 years 10 months early.
- Interest saved: $87,249.32.
Before signing up for a paid biweekly program, check whether your servicer applies the half-payments as they arrive. Some hold them until a full payment is collected, which removes part of the benefit, and you can usually get the same result for free by paying the extra monthly.
Lump sums: tax refunds and bonuses
A one-time payment at the start of this loan, with no monthly extra:
| Lump sum now | Time saved | Interest saved |
|---|---|---|
| $5,000 | 1 year 5 months | $28,410.54 |
| $10,000 | 2 years 9 months | $53,916.69 |
The earlier in the loan a lump sum is paid, the more it saves, because it stops interest for longer. The same $10,000 paid ten years into the loan would save far less.
Is paying extra the best use of the money?
Extra principal earns a guaranteed return equal to your mortgage rate, with no risk. Whether that beats the alternatives depends on your situation:
- First: keep an emergency fund. Money sent to the mortgage cannot be taken back out without selling or borrowing.
- Higher-interest debt: credit cards and most personal loans cost more than a mortgage. Pay those off first.
- Employer 401(k) match: a match is an immediate return that extra mortgage payments cannot equal.
- Low-rate loans: on a 3% mortgage, the guaranteed 3% is less attractive than on a 6.5% or 7% loan.
- Taxes: if you itemize and deduct mortgage interest, your effective rate is a little lower than the note rate.
How to make sure extra payments count
- Choose the "additional principal" option online, or write "apply to principal" on a check. Otherwise the servicer may treat it as an early regular payment.
- Check your mortgage note for a prepayment penalty. Most US home loans made today have none, but some older or non-standard loans do.
- Extra payments shorten the loan; they do not lower the required monthly payment. If you want a lower payment after a large lump sum, ask your servicer about a recast.
- Keep the regular payment on time. An extra payment one month does not let you skip the next one.
Run your own numbers
Your balance, rate and remaining years change every result above. Enter them in the mortgage payoff calculator to see your payoff date and interest saved, compare the full schedule with the amortization calculator, or work out a new loan's payment with the mortgage calculator.
Results are estimates that assume a fixed rate and on-time payments every month. They are for planning, not financial advice.