How much faster can I pay off my mortgage with extra payments?

Paying your mortgage off early

Every extra dollar you pay toward principal saves the interest that dollar would have collected for the rest of the loan. Because interest is front-loaded, extra payments early in a loan have an outsized effect. Small, regular amounts can take years off a 30-year mortgage.

An example

On a $350,000 balance at 6.5% with 28 years left, adding $200 a month pays the loan off about 5 years and 4 months sooner and saves roughly $92,000 in interest.

Three ways to pay extra

• Monthly: a fixed amount added to each payment; the most effective habit.
• Yearly: for example, part of a tax refund or bonus.
• One-time lump sum: an inheritance or the proceeds of a sale.

Before you pay extra

Prepaying a mortgage is a guaranteed return equal to your interest rate, but money in the house is hard to get back out. Most people are better off first building an emergency fund, getting any employer retirement match and paying off higher-interest debt. If your rate is low, investing the difference may come out ahead.

Make sure it’s applied correctly

Tell your servicer the extra money is for principal, and check your statements. Most mortgages today have no prepayment penalty, but confirm in your loan documents.

Make it automatic

The easiest way to stick with it is to set up an automatic extra payment with your servicer or bank, or to round your payment up to an even number. Even a modest amount, started early, does more than a larger amount started late. You can stop at any time if money gets tight, because your required payment doesn’t change.

Questions buyers ask