Extra mortgage payments explained
Last updated: 2026-08-14
Take the $400,000 loan at 6.5% over 30 years, payment $2,528.27. Add $200 a month to principal and the loan clears in about 293 payments instead of 360 — five and a half years early — with roughly $111,000 less interest paid.
That is a 7.9% increase in the monthly payment buying a 22% reduction in total interest. The leverage is the whole point.
Where the saving comes from
| Measure | Scheduled | Plus $200/month |
|---|---|---|
| Monthly payment | $2,528.27 | $2,728.27 |
| Payments made | 360 | ≈293 |
| Total interest | ≈$510,000 | ≈$399,000 |
| Interest avoided | — | ≈$111,000 |
Extra money is applied after the interest due has been taken, so all of it reduces principal. A smaller balance means next month's interest is smaller, which means slightly more of the ordinary payment reaches principal too. The effect feeds itself.
Timing beats size
A dollar of principal repaid at payment 12 prevents interest on 348 remaining months. The same dollar at payment 300 prevents it on 60. The money is identical; the work it does is not.
This is the opposite of how most people approach it. Overpaying feels most affordable later in life, once income has risen and the balance looks smaller — which is exactly when each extra dollar achieves least.
Two things to check before you start
How your lender applies it. An extra amount sent with a normal payment is not automatically treated as principal. Some servicers hold it toward the next scheduled payment instead, which achieves nothing. Ask, and label the payment if there is an option to.
Whether it beats the alternative. Overpaying earns a guaranteed return equal to your mortgage rate, tax-free in effect. At 6.5% that is a strong, riskless return and hard to beat. At 3% it is easily beaten by almost anything, and clearing higher-rate debt first is nearly always better — credit card interest at 22% dwarfs anything a mortgage overpayment can save.
Recurring, lump sum, or recast
A small recurring extra shortens the schedule steadily and is easiest to sustain. A lump sum removes a block of future interest at once and suits a bonus or windfall. Both shorten the term while leaving the payment unchanged.
A recast is the third option and behaves differently: you pay a lump sum, the lender re-amortizes the remaining balance over the remaining term, and the monthly payment falls while the payoff date stays put. Choose it when cash flow matters more than finishing early.
Model it against your loan
The extra payment calculator compares the scheduled and accelerated paths side by side. For payoff-date scenarios use the mortgage payoff calculator, and for the lower-payment route the recast calculator.
Related reading: mortgage amortization explained.
What a small overpayment is worth
Extra principal early in a mortgage removes interest for the entire remaining term, which is why modest amounts have outsized effects.
| Extra each month | Paid off in | Interest saved |
|---|---|---|
| None | 30 years | Baseline |
| $100 | About 27 years 2 months | About $53,000 |
| $200 | About 24 years 11 months | About $92,000 |
| $500 | About 20 years 3 months | About $164,000 |
Two hundred dollars a month removes roughly five years and ninety thousand dollars of interest. The same two hundred dollars applied in year twenty would save a small fraction of that.
Common questions
Is it better to overpay or invest the difference?
Overpaying gives a guaranteed return equal to your mortgage rate. Investing may return more but is not guaranteed. The comparison is between a certain return and an uncertain one, so the answer depends on the rate and on how you feel about risk.
Should I clear other debt first?
Usually yes. Credit card interest normally runs far above any mortgage rate, so paying that down returns more per dollar than overpaying a mortgage.
Do I need to tell the lender it is principal?
Yes. Without instruction many servicers apply extra money to the next scheduled payment rather than to principal, which does not reduce interest at all.
Are there prepayment penalties?
Most standard mortgages have none, but some products do, particularly in the first few years. Check the note before committing to a strategy built on overpayment.
Related reading
The rest of this series, and the calculators that let you run the idea on your own numbers.
More mortgage guides
Try it with your figures
See also all guides, every calculator, and the calculation methodology behind these estimates.