How does making extra mortgage payments work?
Every month, your mortgage payment is split between interest and principal. Early in the loan, the vast majority goes to interest — on a 30-year, $320K loan at 6.5%, your first payment is about $1,733 in interest and only $290 in principal. Extra payments go 100% toward principal, so they punch far above their weight.
Because interest each month is calculated on the remaining balance, every dollar you knock off principal also reduces every future interest payment. That compounding effect is why a $200 extra payment in year 1 saves you roughly $1,000 in lifetime interest.
How much can a small extra payment really save?
Here are real numbers on a $320,000 / 6.5% / 30-year mortgage:
- $50/mo extra: ~$24,000 saved, ~22 months earlier payoff
- $100/mo extra: ~$45,000 saved, ~3.5 years earlier payoff
- $200/mo extra: ~$73,000 saved, ~5 years 2 months earlier payoff
- $500/mo extra: ~$130,000 saved, ~10 years 4 months earlier payoff
What is the simplest way to start making extra payments?
The easiest move is to round up your monthly payment — if your payment is $1,847, pay $1,900 or $2,000. The extra $53–$153 is painless and applies straight to principal. The next-easiest move is to set up automatic monthly principal-only transfers through your servicer's online portal.
What should I tell my lender so the extra goes to principal?
When making the extra payment online, look for a "Principal Only" or "Extra Principal" option. If you mail a check, write "Apply to principal only" in the memo. Without this instruction, some servicers credit it as a future regular payment instead.
Are there downsides to making extra mortgage payments?
The main downside is opportunity cost: dollars locked in your home equity are not earning investment returns and are not liquid in an emergency. Best practice: maintain 6 months of expenses in liquid savings before aggressively prepaying, and prioritize 401(k) match contributions first.