How extra payments save interest
An extra payment applied to principal lowers the balance that every later month's interest is charged on, so it saves interest for all the years that remain. Your required payment stays the same; the loan simply ends earlier. That is why the same dollar saves more the earlier you pay it.
| Extra per month | Paid off in | Time saved | Interest saved |
|---|---|---|---|
| $50 | 27 yr 9 mo | 2 yr 3 mo | $39,526 |
| $100 | 25 yr 10 mo | 4 yr 2 mo | $71,271 |
| $200 | 22 yr 10 mo | 7 yr 2 mo | $119,667 |
| $300 | 20 yr 7 mo | 9 yr 5 mo | $155,264 |
| $500 | 17 yr 4 mo | 12 yr 8 mo | $204,877 |
| $1,000 | 12 yr 7 mo | 17 yr 5 mo | $272,323 |
The rate in the example is Freddie Mac's 30-year average for the week of Nov 12, 2026;[5] for an older loan, enter your own rate and remaining years. To pick the payoff date first and solve for the payment, use the mortgage early payoff calculator instead.
When you pay the extra matters
A lump sum saves the most at the start of a loan, because that is when the balance and the interest on it are largest. The same $10,000 paid at three different times:
| Paid in | Interest saved | Loan ends sooner by |
|---|---|---|
| Month 1 | $64,803 | 3 yr 1 mo |
| Year 11 | $28,861 | 1 yr 7 mo |
| Year 21 | $9,679 | 9 mo |
One extra full payment a year ($2,018, paid every 12th month) cuts the loan to 23 yr 11 mo and saves $101,967. That is the arithmetic behind biweekly plans, which add up to one extra payment a year.
Can a lender charge a prepayment penalty?
Rarely, and never after three years. Under Regulation Z a prepayment penalty is allowed only on a fixed-rate qualified mortgage that is not higher-priced, and it is capped at 2% of the amount prepaid in the first two years and 1% in the third year; after that none is allowed. A lender that offers a loan with a penalty must also offer you one without.[1]
| Loan | Prepayment penalty | Rule |
|---|---|---|
| Conventional qualified mortgage, fixed rate | Up to 2% (years 1–2), 1% (year 3), none after | 12 CFR 1026.43(g) |
| Adjustable-rate or higher-priced loan | Not allowed | 12 CFR 1026.43(g) |
| FHA | Not allowed; prepay in any amount at any time | 24 CFR 203.22 |
| VA | Not allowed; prepay without premium or fee | 38 CFR 36.4311 |
FHA mortgages must allow prepayment in whole or in part at any time;[2] VA loans can be prepaid without premium or fee.[3] Check your note for any penalty before sending a large lump sum in the first three years.
Make sure the money reaches principal
Send extra principal with a clear instruction, and check the next statement. Servicer guides treat additional principal payments as a separate step: Fannie Mae's servicing guide, for example, has its own section on processing them, and on re-amortizing the payment afterwards if the borrower asks.[4] Without a request, the payment stays the same and the payoff date moves; with a recast, the payment falls instead.
Before you prepayExtra principal is money you cannot easily get back. Many people keep an emergency fund first, and compare the mortgage rate with the cost of other debt. Mortgage interest you no longer pay also means less to deduct if you itemize.[6] Paying off a HELOC or other variable-rate debt first may save more.
Frequently asked questions
How much do I save by paying $100 extra on my mortgage?
On $300,000 at 7.11% over 30 years, $100 a month saves $71,271 of interest and ends the loan 4 yr 2 mo early.
Is it better to pay extra monthly or once a year?
Monthly is slightly better for the same yearly total, because each payment starts saving interest sooner. The difference is small; what matters most is the total extra and how early you start.
Do extra payments lower my monthly payment?
Not by themselves. The required payment stays the same and the loan ends sooner. To lower the payment after a large lump sum, ask your servicer about a recast.
Can I be charged a prepayment penalty?
Only on certain fixed-rate qualified mortgages, only in the first three years, and at most 2% (years 1–2) or 1% (year 3).[1] FHA and VA loans have none.
Sources
- Regulation Z § 1026.43(g), limits on prepayment penalties
- 24 CFR 203.22, Payment of insurance premiums and prepayment (FHA)
- 38 CFR 36.4311, Prepayment (VA home loans)
- Servicing Guide C-1.2-01, Processing Additional Principal Payments (re-amortization)
- Primary Mortgage Market Survey (PMMS)
- Publication 936 (2025), Home Mortgage Interest Deduction