How Extra Principal Payments Shave Years Off Your Mortgage

Making extra payments directly to your mortgage principal is one of the most powerful financial strategies for homeowners. Because mortgage interest compounds over long terms, reducing your principal early halts future interest from compounding on that amount, saving you massive amounts of cash.

There are several ways to apply extra payments. You can make an extra payment once a year, add a fixed amount to your monthly checkout, or make a single lump-sum payment when you receive a bonus or tax refund. Even minor additions can make a profound difference over a 30-year span.

For instance, adding $200 extra per month to a $350,000 mortgage at 6% interest can shave over 5 years off your total loan term and save you upwards of $50,000 in cumulative interest. This is because every extra dollar is applied 100% to principal reduction, bypassing the interest calculation.

Before making extra payments, confirm with your lender that there are no prepayment penalties and that the extra funds are explicitly marked 'apply to principal.' Use the extra payments tab on our calculator to see exactly how many years you can shave off your payoff term.