How much does an extra payment save?

Every dollar of extra principal you pay reduces the outstanding balance, which reduces the interest charged the following month. That freed-up interest capacity goes toward principal too, creating a compounding effect that accelerates payoff. The earlier in the loan you start, the larger the impact — because interest in the first years makes up the biggest share of each payment.

Monthly extra payments almost always outperform one equivalent lump sum at year-end because the balance reduction happens earlier, reducing the interest that compounds over the following 11 months. A $200/month extra saves more than a single $2,400 annual payment made in December — the calculator shows the monthly-extra scenario by default.

Any amount above your scheduled payment is applied directly to principal — not to future payments. This is standard for all US conforming mortgages. However, you should confirm with your servicer that extra amounts are applied to principal immediately and not held as a "pre-payment" of next month's bill. Some servicers require you to note "apply to principal" in the memo or online payment field.

Most conventional, FHA and VA loans originated after 2014 have no prepayment penalty under the Dodd-Frank qualified mortgage rules. Older loans, jumbo loans, and some portfolio loans may still carry prepayment penalties — check your loan agreement or ask your servicer before making large extra payments.

Extra mortgage payments earn a guaranteed return equal to your mortgage interest rate (tax-deductible if you itemize). If your after-tax mortgage rate is 5% and you expect your investments to return more than 5% after tax, investing beats prepaying. If markets are uncertain or your rate is high, prepaying can be the better risk-adjusted choice. This calculator shows the guaranteed savings — weigh them against your expected investment returns.