Why a small extra payment moves so much money
A mortgage payment is front-loaded with interest. In month one of the loan above, roughly $2,438 of the $2,844 payment is interest and only about $406 touches the principal. An extra $250 sent in that month therefore buys you more principal reduction than the scheduled payment does — and it permanently cancels every interest charge that balance would have generated for the next 29 years.
That compounding is why the savings column grows far faster than the amount you add. Doubling the extra payment more than doubles the interest avoided in the early years of the loan.
Extra payments and PMI
PMI is charged while the balance sits above 80% of the original home value. Extra principal reaches that line sooner, so the premium — in this example $225 a month — stops earlier and effectively increases your return on the extra payment. The calculator shows the exact month PMI falls away for each scenario.
How to make the payment correctly
- Mark the funds principal only with your servicer.
- Confirm on the next statement that the balance dropped by the full amount.
- Check for prepayment penalties — rare on conforming US loans, common on some portfolio and non-QM products.
- Keep the emergency fund first; principal paid in is hard to get back out without a HELOC or refinance.
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Frequently asked questions
- How much does one extra mortgage payment a year save?
- One extra full payment per year on a 30-year loan typically removes four to five years from the term and tens of thousands of dollars of interest, because every extra dollar of principal cancels all future interest that would have accrued on it.
- Is it better to pay extra monthly or one lump sum a year?
- The same total money applied monthly saves slightly more than a single year-end lump sum, because each monthly amount starts reducing the balance sooner. The difference is small; consistency matters more than timing.
- Do extra payments lower my monthly payment?
- No. Extra principal shortens the term but leaves the required payment unchanged. To lower the required payment you need a recast (re-amortizing the reduced balance over the remaining term) or a refinance.
- Should I tell my lender the extra money is for principal?
- Yes. Without a principal-only instruction many servicers apply extra funds to the next scheduled payment or hold them in suspense, which does not reduce interest.
- Do extra payments remove PMI faster?
- Yes. PMI comes off once the balance reaches 80% of the original value, so extra principal reaches that threshold sooner and stops the premium earlier.
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