How Extra Mortgage Payments Can Reduce Interest
Learn how additional principal payments can shorten a mortgage and reduce total interest, and what to check before paying extra.
Why extra principal changes the loan
On a typical amortizing mortgage, interest is calculated from the outstanding principal balance. An extra payment applied to principal reduces that balance sooner, so future interest is calculated on a smaller amount.
Small recurring payments can add up
An additional amount each month can shorten the payoff period because more principal is removed throughout the life of the loan. The effect depends on your balance, interest rate, remaining term and when the extra payments begin.
Check how your servicer applies payments
Confirm that extra money is applied to principal rather than treated as an early future payment. Also review your loan documents for any prepayment restrictions or charges that may apply.
Compare extra payments with other priorities
Before accelerating a mortgage, consider emergency savings, higher-interest debt, retirement contributions and other financial goals. Paying down a mortgage creates a predictable reduction in interest expense, but the money becomes less liquid once it is tied up in home equity.
Educational information only. This article is not individualized financial, investment, tax or legal advice and is not a lender or issuer offer. Review current disclosures from the relevant financial institution before making a decision.