Extra Mortgage Payment Benefits
Making extra principal payments is one of the most effective ways to build wealth through homeownership. Even small additional payments dramatically reduce interest and shorten your loan term. For example, paying an extra $200 monthly on a $300,000 mortgage at 6.5% can save over $80,000 in interest and cut 7+ years from a 30-year loan.
The impact of extra payments is greatest early in the loan when the principal balance is highest. However, extra payments benefit you at any point. The key is ensuring payments are applied to principal, not held for next month's payment. Most lenders accept online payments with options to specify principal-only payments, or you can mail a separate check marked for principal.
Before making extra payments, ensure you have adequate emergency savings (3-6 months expenses), are maximizing employer 401(k) matches, and have paid off higher-interest debt like credit cards. After meeting these priorities, extra mortgage payments provide a guaranteed return equal to your mortgage rate, which is often better than conservative investments after taxes.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Even $50-100 monthly makes a meaningful difference. Pay what you can afford after building emergency savings and meeting other financial goals. Any extra amount helps, and you can adjust as your finances change.
Extra payments have the greatest impact early in the loan. However, they benefit you at any point. Start whenever you have surplus cash beyond essential expenses and emergency savings.
Compare your mortgage rate to potential investment returns. If your rate is 6%+, extra payments provide a solid guaranteed return. If under 4%, investing in retirement accounts may yield better long-term returns.
No, extra payments don't excuse regular payments. They reduce principal and future interest, but you must continue regular payments. Some lenders offer recast options to lower payments after significant extra payments.
Add extra to your regular payment and specify it's for principal. Most online payment systems have principal-only options. Alternatively, make a separate principal-only payment each month.