The math behind extra mortgage payments
Key takeaways
04 · ideas- Extra $100/month on a $300k 6% mortgage saves $62,000 and 4.5 years
- One extra payment per year achieves similar results to biweekly payments
- Front-loaded amortization means early extra payments are 3x more valuable than later ones
- The break-even vs. investing depends entirely on your mortgage rate
Basic level
The essentials · 1 min
Every dollar of extra payment on a mortgage goes directly to principal — skipping all future interest that would have accrued on that dollar.
Why this is powerful: On a 30-year mortgage at 6%, every $1 you pay in principal today saves you $1 × (30 remaining years × 6%) = potentially $1.80 in interest. The earlier in the loan, the more interest you skip.
$300,000 mortgage at 6% for 30 years (monthly payment: $1,799):
| Extra payment | Interest saved | Years saved |
|---|---|---|
| $50/month | $32,000 | 2.3 years |
| $100/month | $62,000 | 4.5 years |
| $200/month | $112,000 | 8.0 years |
| $500/month | $211,000 | 14.5 years |
| One lump sum $5,000 in year 1 | $18,000 | 1.3 years |
These savings are tax-free (you're not earning interest, you're avoiding a cost). For most people, prepaying a 6%+ mortgage is an excellent risk-free return.
Intermediate level
How it applies · 2 min
Biweekly vs. monthly extra payments
Biweekly payment strategy: Instead of 12 monthly payments, make 26 half-payments per year. The math: 26 × (half payment) = 13 full payments. One extra payment per year.
On a $300,000 30-year mortgage at 6%:- Monthly: 360 payments × $1,799 = $647,640 total
- Biweekly equivalent: ~26 years, $590,000 total
- Savings: ~$57,640 and 4 years
Warning: Some lenders charge fees to set up biweekly programs ($200–$400). You can replicate this for free: divide your monthly payment by 12 and add that amount to each payment. The math is identical.
The "early vs. late" advantage
An extra $1,000 paid in year 1 of a 30-year mortgage at 6% saves approximately $5,000 in total interest.
The same $1,000 paid in year 20 saves approximately $1,100.
Year 1 extra payment is 4.5× more valuable than year 20. This is why refinancing resets the clock — if you've been paying for 10 years and refinance into another 30-year, you restart the interest-heavy period.
The invest vs. prepay decision
With mortgage rate r_m and expected investment return r_i:
- If $r_i > r_m$: Invest (higher return)
- If $r_i < r_m$: Prepaying may reduce total interest (an equivalent return at your loan rate (without market risk) at the mortgage rate)
- If $r_i ≈ r_m$: Tax and risk considerations decide (mortgage interest may be deductible; investment returns are taxable and uncertain)
Rule of thumb: Mortgage rate below 5% → invest extra money. Rate above 6% → prepay is usually better. Rate 5–6% → depends on your tax situation and risk tolerance.
Advanced level
The math, step by step · 1 min
Optimal lump sum timing
For a loan with remaining balance B_k at month k, a lump sum payment L reduces balance to B_k - L.
Interest saved by paying L at month k vs. m (m > k):
Approximately: earlier deployment generally reduces more interest by a factor of (1+r)^{m-k}.
The prepayment premium: Each $1 prepaid at month k eliminates r in monthly interest from month k+1 through month n (payoff). The present value of this stream:
For a 6% mortgage in year 1, this factor is approximately 1.6–1.8 — meaning $1 of extra payment generates $1.60–$1.80 in interest savings.
The refinance interaction: After prepaying $50,000 on a 30-year mortgage and reducing the balance from $300,000 to $250,000, refinancing has an amplified effect: the lower balance reduces total interest paid over any new term. The combined "prepay then refinance" strategy, timed around rate cycles, can generate maximum interest savings.