Yes, making one extra mortgage payment per year can save you between $40,000 and $70,000 in interest on a typical 30-year mortgage and cut 4-6 years off your loan term. This single strategy works because that extra payment goes directly toward your principal balance, reducing the amount that accrues interest for the remaining life of the loan. It's one of the simplest, most effective accelerated payoff strategies available to homeowners who don't want to refinance or commit to a higher monthly payment.
What Is the One-Extra-Payment-a-Year Hack and How Does It Work?
The one-extra-payment-a-year hack is exactly what it sounds like: instead of making the standard 12 monthly mortgage payments each year, you make 13. That additional payment is applied entirely to your principal balance, bypassing the interest that would normally consume most of your early mortgage payments.
To understand why this works so powerfully, you need to understand mortgage amortization. In the early years of a 30-year loan, the vast majority of your monthly payment goes toward interest, not principal. For example, on a $320,000 mortgage at 6.5% interest, your monthly principal and interest payment is approximately $2,022. In month one, about $1,733 of that payment goes to interest and only $289 reduces your principal. That ratio shifts gradually over 30 years, but it takes nearly two decades before the majority of each payment actually attacks the loan balance.
When you make one extra payment of $2,022 per year, the entire amount goes to principal. The plain English formula is this: Extra Principal Paid = Annual Extra Payment × Years Remaining, plus all the future interest you avoid on that reduced balance. Because you're shrinking the principal earlier in the loan, you eliminate years of compounding interest charges. On that same $320,000 loan, one extra annual payment of $2,022 saves roughly $68,000 in total interest and cuts the loan from 30 years down to about 25 years and 2 months.
There are three popular ways to execute this hack: pay a lump sum once a year (often using a tax refund or bonus), divide your monthly payment by 12 and add that amount to each month's payment, or switch to biweekly payments, which naturally produces one extra full payment per year through the calendar math.
How Much Can You Actually Save?
The savings depend on your loan size, interest rate, and how much extra you contribute. The table below shows three scenarios for a $320,000 mortgage at 6.5% over 30 years. The standard monthly principal and interest payment is $2,022.
| Strategy | Monthly Payment | Total Interest | Payoff Date | You Save |
|---|---|---|---|---|
| Standard 30-Year | $2,022 | $408,142 | Year 30 | — |
| +$100/month extra ($1,200/yr) | $2,122 | $363,890 | Year 26.5 | $44,252 |
| +$250/month extra ($3,000/yr) | $2,272 | $314,560 | Year 22.4 | $93,582 |
| +$500/month extra ($6,000/yr) | $2,522 | $256,420 | Year 18.1 | $151,722 |
| 1 extra full payment/year ($2,022) | $2,022 + 1 extra | $339,890 | Year 25.2 | $68,252 |
Notice that even the most modest commitment, an extra $100 per month, saves over $44,000. The single annual extra payment lands right in the middle, delivering nearly $70,000 in savings with minimal lifestyle disruption. Use our extra payment calculator to plug in your own loan details and see your personalized numbers.
Step-by-Step: How to Make One Extra Payment a Year
- Confirm your loan allows prepayment without penalty. Read your mortgage note or call your servicer. Federal law prohibits prepayment penalties on most loans originated after January 2014, but older loans may have them. If you have a penalty, calculate whether the interest savings still come out ahead.
- Choose your funding source. Most homeowners use one of three sources: their annual tax refund (averaging $3,000), a year-end work bonus, or a dedicated monthly savings transfer of 1/12 of a payment into a high-yield savings account. Pick the option you can sustain for years, not just one year.
- Set a specific date and put it on the calendar. Many people aim for February (after tax refunds arrive) or December. Treat this date like any other bill due date and automate it if your servicer allows scheduled extra payments.
- Designate the payment as principal-only. This is the most critical step. When you submit the extra payment, you must specify in writing or through your online portal that it should be applied to principal. Otherwise, many servicers will apply it as a prepayment of the next month's payment, which does not save you interest.
- Verify the payment posted correctly. Log in to your mortgage account within 5 business days of payment. Confirm the extra amount reduced your principal balance and didn't shift your due date. Mistakes happen, and catching them early prevents months of misapplied payments.
- Track your progress against an updated amortization schedule. Generate a new amortization schedule each year showing your accelerated payoff date. Seeing the loan term shrink is powerful motivation to keep going.
- Increase the extra payment when your income grows. Each time you get a raise, consider bumping the extra annual amount by 5-10%. This compounds your savings further without ever feeling like a sacrifice.
Common Mistakes Homeowners Make with Extra Mortgage Payments
- Forgetting to mark the payment as principal-only. This is the number one error. Without explicit instructions, your servicer may credit the payment toward future months instead of reducing principal. The result: zero interest savings and a wasted opportunity. Always include a note that reads "Apply to principal only."
- Paying down the mortgage before higher-interest debt. If you're carrying credit card debt at 22% or a car loan at 9%, those should be paid off first. Mortgage interest is the cheapest debt most people will ever have, and it's often tax-deductible. Run the math on total interest, not emotional comfort.
- Skipping retirement contributions to make extra mortgage payments. If you haven't maxed out your employer's 401(k) match, you're leaving free money on the table. That match typically delivers a 50-100% return instantly, while your mortgage saves you 6-7%. Fund retirement first, then attack the mortgage.
- Stopping after one or two years. The hack only delivers six-figure savings when sustained across the life of the loan. Many homeowners get excited, make extra payments for 18 months, then drift back to standard payments. Automate the habit so it survives motivation dips.
Is the One-Extra-Payment Hack Right for You? Key Questions to Ask
Before committing to this strategy, work through these four decision criteria honestly.
1. Do you have a fully funded emergency fund of 3-6 months of expenses? If not, build that first. Money you put toward your mortgage is locked into your home and can't be retrieved easily during a job loss or medical emergency. Liquidity matters more than interest savings.
2. Are you maximizing your employer's retirement match? If your employer matches 401(k) contributions up to 4% and you're not contributing that much, redirect any "extra mortgage" money there first. The guaranteed match outperforms mortgage prepayment every time.
3. Is your mortgage interest rate above 5%? For rates between 3-5%, the math is closer and many homeowners prefer investing the difference in index funds with historical returns of 7-10%. Above 5%, especially above 6%, prepayment becomes increasingly attractive on a risk-adjusted basis.
4. Do you plan to stay in this home for at least 5 more years? If you're likely to sell soon, the interest savings won't have time to fully materialize. Explore other payoff strategies if your timeline is shorter.
Frequently Asked Questions
Does it matter when during the year I make the extra payment?
Yes, but only slightly. Earlier is better because it reduces your principal sooner, meaning less interest accrues for the rest of the year. A January extra payment saves marginally more than a December one, but the difference on a $2,022 payment is only about $100-130 over the life of the loan. Consistency matters far more than timing.
Is making one extra payment a year better than refinancing?
It depends on rates. If you can refinance to a rate at least 1% lower than your current rate and plan to stay in the home long enough to recoup closing costs (usually 2-3 years), refinancing typically wins. If rates are higher than your current rate, the extra-payment hack is your best move because it costs nothing in fees and requires no qualification.
Will my monthly payment go down after I make extra payments?
No. Your scheduled monthly payment stays the same, but each extra principal payment shortens the loan term. If you want a lower monthly payment after making large extra payments, you can request a loan "recast" from your servicer, which re-amortizes the loan at the lower balance for a small fee ($150-$500).
Can I make the extra payment in smaller chunks throughout the year?
Absolutely, and many homeowners prefer this. Dividing one full payment by 12 means adding about $168 per month on a $2,022 payment. This produces nearly identical savings to one lump sum and is easier on monthly cash flow. Just make sure each extra amount is clearly marked as principal-only.
Does the extra payment affect my taxes?
Slightly. Because more of your payment goes to principal instead of interest, your annual mortgage interest deduction will be smaller. For most homeowners taking the standard deduction (which is $14,600 single / $29,200 married in 2024), this has zero impact. If you itemize, expect a modest reduction in deductible interest each year, which is far outweighed by the interest you're saving outright.
The bottom line: one extra mortgage payment per year is one of the highest-impact, lowest-effort financial moves available to American homeowners. It requires no refinancing, no application, no fees, and no lifestyle overhaul, yet it can save you the equivalent of a new car every year of your remaining loan term. Run your own numbers with our free extra payment calculator to see exactly how much you'd save and when you'd be mortgage-free.