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How the payoff math works
- Baseline: your regular payment comes from the standard amortization formula, and total interest without extras is simply payment × months − balance.
- With extras: the loan is simulated month by month — interest accrues, then your full payment (regular + extra) reduces the balance. Because each extra dollar permanently shrinks the balance, later months accrue less interest; that compounding-in-reverse is where the savings come from.
- Why early dollars matter most: extra principal paid in year 1 saves interest in every remaining year of the loan. The same dollar sent in year 20 saves far less.
- Assumes a fixed rate, extras applied to principal starting next month, and no prepayment penalties or fees.
Frequently asked questions
How much do extra mortgage payments save?
It depends on rate and timing, but extra principal payments are powerful because they permanently shrink the balance that future interest is charged on. On a $400,000, 7%, 30-year loan, an extra $500/month saves roughly $230,000 in interest and pays the loan off about 10¾ years early.
Is it better to pay extra monthly or make one lump sum?
Earlier is better — a lump sum today beats the same dollars spread over months, because it stops interest sooner. But the best schedule is the one you'll actually stick with; consistent monthly extras beat a planned lump sum that never happens.
Do extra payments go to principal automatically?
Not always. Many servicers apply overpayments to future payments or escrow unless you specify principal-only. Tell your servicer in writing that extra amounts should reduce principal, and check a statement to confirm.
Should I pay down my mortgage or invest instead?
Compare your after-tax mortgage rate to your expected after-tax investment return, and weigh the guarantee: extra mortgage payments earn a risk-free return equal to your rate, while investing offers higher expected but uncertain returns. Liquidity matters too — home equity is harder to access than a brokerage account.
Are there prepayment penalties?
Most US conventional mortgages have no prepayment penalty, but some loans do — especially certain non-QM or older products. Check your note or ask your servicer before sending large extra payments.
Related calculators
- Refinance — break-even month and lifetime savings of a refinance.
- Home Equity — how much you can borrow against your home, and what it costs.
- Avalanche vs Snowball — pick the payoff order that gets you debt-free fastest.
Last updated: September 27, 2026