Why overpayments work so well
On a 30-year loan at 6.75%, roughly two-thirds of your first year's payments go to interest, not principal. Each extra dollar you send skips ahead in the schedule and eliminates every future interest charge that would have accrued on it.
A $200 monthly overpayment on a $500,000 loan at 6.75% typically saves $150,000+ in interest and pays the mortgage off 6+ years earlier. A single $10,000 lump-sum in year 2 can save $30,000+ over the full term.
Strategies compared
- Extra monthly — steady, biggest total savings over the term.
- Biweekly payments — 26 half-payments = 13 full payments per year, an "invisible" extra payment.
- Annual lump sum — great for bonuses or tax refunds.
- One-time recast — a large early lump reduces your required monthly payment while keeping the term.
When NOT to overpay
If your mortgage rate is below your expected investment return after tax, and you have room in tax-advantaged accounts, investing the difference often wins mathematically. Overpay when: the rate is high, you value guaranteed savings, or you want to eliminate PMI faster by hitting 80% LTV.
Frequently asked questions
- What is a mortgage overpayment?
- Any payment above the scheduled amount that is applied directly to the loan principal. It reduces the balance immediately, so all future interest is charged on a smaller sum.
- How much interest does overpaying a mortgage save?
- On a $450,000 loan at 6.5%, an extra $250 a month saves roughly six figures of interest over the term and clears the loan several years early. The exact figure depends on your rate, balance and remaining term.
- Is there a limit on mortgage overpayments?
- Most US conforming loans allow unlimited overpayment with no penalty. Some portfolio, non-QM and non-US products cap penalty-free overpayments (commonly 10% of the balance per year), so check your loan documents first.
- Does overpaying reduce the term or the monthly payment?
- It reduces the term. The scheduled payment stays the same unless you ask the servicer for a recast, which re-amortizes the lower balance across the remaining term and lowers the required payment instead.
- Should I overpay the mortgage or invest?
- Overpaying earns a guaranteed return equal to your mortgage rate with no tax drag. Investing wins only if the expected after-tax return exceeds that rate. Compare the NPV and IRR figures in the calculator before deciding.
Model your overpayment strategy
Set extra monthly + a one-time lump sum. See interest saved and years shaved in seconds.
Open the Overpayments tab →