Buying a home is one of the biggest financial commitments you’ll ever make. But did you know that making extra mortgage payments—even just a little extra each month—can save you thousands of dollars in interest and help you pay off your mortgage years earlier?
In this guide, we’ll explore how extra payments work, the best strategies to do it, and real-life examples showing how you can cut down your loan term and save money.
How Mortgage Interest Works and Why Extra Payments Matter
When you take out a mortgage, your monthly payment includes both principal and interest. In the beginning, a large portion of your payment goes toward interest, while only a small amount reduces your loan balance.
💡 Example:
- You borrow $300,000 at 6% interest on a 30-year loan.
- Your monthly payment (excluding taxes and insurance) is $1,799.
- Over 30 years, you’ll pay $347,514 in interest alone!
But what if you paid extra every month? You could reduce the total interest significantly and pay off your loan faster.
Benefits of Making Extra Mortgage Payments
✅ 1. Pay Off Your Loan Years Earlier
Adding extra payments shortens your loan term, helping you become debt-free faster.
✅ 2. Save Tens of Thousands in Interest
Even small extra payments can cut thousands off your total interest paid.
✅ 3. Build Equity Faster
Your home equity grows quicker, giving you more financial flexibility.
✅ 4. Reduce Financial Stress
Knowing your home will be paid off sooner gives peace of mind.
Best Strategies to Make Extra Mortgage Payments
1. Round Up Your Payments
Instead of paying exactly $1,799, round up to $1,900 or $2,000 each month. The extra money goes straight to the principal.
💡 Example:
- If you round up your payment from $1,799 to $2,000, you can pay off your loan 4-5 years early!
2. Make Biweekly Payments Instead of Monthly Payments
Instead of 12 monthly payments, you make half a payment every two weeks. This results in 26 half-payments (13 full payments) per year—one extra payment annually.
💡 Example:
- On a $300,000 loan, switching to biweekly payments can save you over $50,000 in interest and pay off the loan 5 years early!
3. Apply Bonuses, Raises, or Tax Refunds to Your Mortgage
Any extra income you receive—work bonuses, tax refunds, or a salary raise—can be used to make lump-sum payments toward your principal.
💡 Example:
- If you get a $3,000 tax refund every year and apply it to your mortgage, you could pay off your loan 7-8 years earlier!
4. Make One Extra Payment Per Year
If making biweekly payments isn’t possible, just make one additional full payment per year.
💡 Example:
- On a 30-year, $300,000 mortgage at 6%, making one extra payment per year could save $60,000 in interest and shave off nearly 6 years from your loan!
5. Refinance to a Shorter Loan Term
If you can afford a slightly higher monthly payment, refinancing to a 15-year mortgage can save you a massive amount in interest.
💡 Example:
- A 30-year, $300,000 loan at 6% costs $347,514 in interest.
- A 15-year loan at 5.5% costs only $141,799 in interest—saving over $200,000!
How Much Can You Save? A Real-Life Example
Let’s say Anna has a $250,000 mortgage with a 6% interest rate for 30 years. Her monthly payment is $1,499.
| Extra Payment Per Month | Years Saved | Interest Saved |
| $50 | 3 years | $27,000 |
| $100 | 5 years | $45,000 |
| $200 | 8 years | $74,000 |
| $500 | 13 years | $120,000 |
💡 Moral of the story? Even small extra payments add up to BIG savings!
Common Myths About Making Extra Mortgage Payments
❌ Myth #1: I’ll Be Penalized for Paying Extra
✔ Many modern mortgages don’t have prepayment penalties, but check with your lender first.
❌ Myth #2: Investing Money is Better than Paying Off My Mortgage
✔ While investing is great, a mortgage is guaranteed debt—paying it off early is a risk-free return.
❌ Myth #3: I Can Only Make Extra Payments at Certain Times
✔ Nope! You can make extra payments any time—monthly, quarterly, or whenever you have extra cash.
Final Thoughts: A Simple Strategy for Big Savings
Making extra mortgage payments—even small ones—can save you thousands of dollars in interest and help you become debt-free faster.
Action Plan:
✔ Start rounding up payments today.
✔ Switch to biweekly payments if possible.
✔ Use bonuses and tax refunds for lump-sum payments.
✔ Consider refinancing for a shorter loan term.
Ready to see how much you can save? Use our mortgage calculator now!
Leave a Reply