Paying Off Your Mortgage Early
Every mortgage payment splits into two parts: principal, the amount you borrowed, and
interest, the lender's charge for lending it, calculated each month on the balance that
remains. Early in the loan the balance is at its largest, so most of each payment is interest. As the
balance falls, interest shrinks and principal repayment accelerates. Anything that cuts the balance
sooner — extra payments, biweekly payments, or a lump sum — removes interest from every month
that follows, which is why early extra payments are worth so much more than late ones.
Strategy 1: Extra payments
Extra payments go straight to principal on top of your scheduled payment. They can be monthly, yearly,
or a single one-time amount. The numbers are striking even for small amounts: on a $200,000, 30-year loan
at 5%, one extra payment of $1,000 today shortens the loan by about four months and saves roughly $3,400
in interest — and adding just $6 a month saves about $2,800. Scale that up and the savings reach six
figures, as the first calculator above shows. When you send extra money, tell your servicer to apply it
to principal, not to future payments.
Strategy 2: Biweekly payments
Instead of one monthly payment, pay half the amount every two weeks. A year has 52 weeks, so you make
26 half payments — the equivalent of 13 full monthly payments instead of 12. That one
extra payment per year goes entirely to principal and typically cuts several years off a 30-year
mortgage. The schedule lines up naturally with a biweekly paycheck, so many borrowers never feel the
extra payment at all. Check that your servicer applies the payments as they arrive rather than holding
partial payments until the full amount accumulates.
Strategy 3: Refinance to a shorter term
Refinancing replaces your loan with a new one, ideally at a lower rate, a shorter term, or both. Shorter
terms carry lower rates and force faster principal repayment. For example, refinancing $200,000 with
20 years left from 5% into a new 20-year loan at 4% drops the payment from $1,319.91 to $1,211.96 and
saves about $25,908 in interest. The catch is closing costs, typically 2–5% of the loan, so compare
the break-even point against how long you plan to stay. Run the numbers on our
mortgage calculator before deciding.
Watch out for prepayment penalties
Some loans charge a fee for paying off early, because the lender loses years of expected interest income.
Penalties are usually a percentage of the outstanding balance or a slice of upcoming interest, and they
are largest in the first years of the loan. They have become uncommon, often expire after a few years,
and are prohibited outright on FHA loans, VA loans, and loans from federally chartered credit unions.
Still, read your loan documents or ask your lender before making a large extra payment.
When paying off early is NOT the best move
Every dollar sent to the mortgage is a dollar that cannot do something else. Mortgage rates are
relatively low, so extra payments earn a modest, guaranteed return equal to your rate. Before adding
extra payments, most households are better off: (1) clearing high-interest debt such as credit cards at
20%+, (2) capturing an employer's full 401(k) match and funding tax-advantaged accounts like an IRA,
and (3) holding a 3–6 month emergency fund — home equity is hard to borrow back in a job loss.
If those boxes are checked and you value the certainty of owning your home outright, extra payments are
an excellent low-risk use of spare cash. The examples in the calculators above let you compare the
trade-off with your own numbers.
FAQ
How much can extra mortgage payments save?
It depends on the balance, rate and remaining term, but the effect is large: an extra $500/month on a $372,217 balance at 6% with 25 years left pays the loan off 7 years and 9 months early and saves about $122,306 in interest.
How do biweekly payments pay off a mortgage faster?
Paying half the monthly payment every two weeks produces 26 half payments a year, which equals 13 full monthly payments. That one extra payment per year goes entirely to principal and typically shortens a 30-year mortgage by several years.
Should I pay off my mortgage early or invest?
Compare the mortgage rate with what the money could do elsewhere. Extra mortgage payments earn a guaranteed return equal to the interest rate. Higher-interest debts should usually be cleared first, and tax-advantaged retirement contributions often come before extra mortgage payments.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute financial
advice. Results ignore taxes, insurance, HOA dues and any prepayment penalties. Confirm payoff figures with
your loan servicer.