How extra mortgage payments actually work
Every mortgage payment splits into two parts: interest (the lender's charge for that month) and principal (the part that reduces your debt). Early in a mortgage, most of the payment is interest — on a new 30-year loan at 6.5%, roughly two-thirds of your first payment is interest.
An extra payment skips the line. Because your required payment already covers that month's interest, every dollar of extra payment goes 100% to principal. A smaller principal means less interest accrues next month, so slightly more of your regular payment hits principal too. This compounding effect is why modest extra payments produce outsized savings over decades.
The math behind the calculator
The calculator first derives your required monthly payment from the standard amortization formula:
where P is the balance, r is the monthly rate (annual rate ÷ 12), and n is the number of remaining months. It then simulates the loan month by month twice — once with your regular payment and once with the extra amount (and any lump sum applied up front) — and compares total interest and payoff dates.
A realistic example
Take a $300,000 balance at 6.5% with 27 years left. The required payment is about $1,943. Adding just $200 per month:
- Payoff time drops from 27 years to about 21½ years — 5½ years sooner.
- Total interest falls from roughly $329,000 to about $246,000 — about $83,000 saved.
That's a return most people can't get anywhere else without risk: prepaying a 6.5% mortgage is mathematically identical to earning a guaranteed, tax-free 6.5% on that $200.
Three ways to prepay (ranked by convenience)
- Monthly extra payment. Set an automatic extra amount with your servicer, flagged "apply to principal." Easiest to sustain.
- Biweekly payments. Pay half your payment every two weeks. Because there are 26 half-payments in a year, you make the equivalent of 13 monthly payments — one extra per year — without feeling it.
- Annual lump sum. Tax refunds and bonuses work well. A single $5,000 principal payment early in a 6.5% loan saves roughly $15,000 in lifetime interest.
When you should NOT prepay your mortgage
Prepaying is not automatically the right move. Consider holding off if any of these apply:
- You have higher-rate debt. Credit cards at 22% beat a mortgage at 6.5% every time. Kill the card debt first — our credit card payoff calculator shows how fast you can.
- You'd miss an employer match. A 50–100% match in a 401(k) is an instant 50–100% return. Capture it before prepaying.
- You have no emergency fund. Money sent to the mortgage is hard to get back. Build 3–6 months of expenses first (calculate your target).
- Your rate is very low. If you locked in 3% in 2021, the case for investing instead is strong.