Mortgages can be viewed very differently.

Some see them as a positive financial instrument, a way to free up their money so it can be invested elsewhere, ideally for a better return.

Then there are those who view mortgages as the root of all evil, as a debt overhang that must be terminated as quickly as possible.

Whatever your stance, you’ve probably entertained the idea of making “extra mortgage payments,” though you may not know the exact impact, due to the complexity of mortgage amortization.

Fortunately, there are early payoff calculators available that take the guesswork out of the process and make it easy to see how much you can save in a number of different scenarios.

## Adding an Extra $10 a Month

- Even adding a nominal amount
- On a monthly basis over time
- Can save you thousands of dollars on your mortgage
- And shorten your loan term

Let’s start with a simple scenario where you add just $10 a month in extra payment to principal.

Assuming you’ve got a $100,000 loan amount set at 4% on a 30-year fixed mortgage, that extra $10 payment would save you $3,191.81 over the full loan term.

It would also shorten your mortgage by 13 months, meaning your 30-year mortgage would be a 28-year (ish) mortgage.

So that’s good news, right? You save thousands and you only have to pay a measly $10 extra per month. You probably wouldn’t even notice the difference.

What if you bumped up that extra payment to $25? Well, you would shave 32 months off your mortgage, nearly three years, and reduce total interest by $7,450.04.

Feeling ambitious? Add $100 a month and you reduce your term by 101 months, or nearly 8.5 years, while saving $22,463.79 in interest.

You can also just make your mortgage payments a solid round number and save money that way too.

[30-year vs. 15-year mortgage]

## Extra Payments Are More Valuable Early On

- You get more value out of extra mortgage payments
- Early in the loan term
- Because knocking down the outstanding balance earlier
- Means less interest accrues

As you can see, it’s not that hard to save a ton of money via extra payments, but it also matters when you start making those additional payments.

Using our $100 example, if you started making extra payments in year six of your 30-year mortgage, (month 61) you’d only save $15,095.21, and shed just 78 months off your mortgage.

Even if you procrastinated for just one year to initiate the extra $100 payment, your total savings would drop to $20,989.55, and only eight years would come off your mortgage term.

In short, the earlier you start making extra payments, the more you’ll save. This is mainly because mortgage payments are interest-heavy in the beginning of the term.

[Are biweekly payments a good idea?]

## One Extra Lump Sum Payment

- An extra lump sum mortgage payment
- Could be more valuable
- If made soon after you take out your mortgage
- Its value diminishes over time since less interest is due later in the loan term

Now let’s assume that you came upon some extra dough and want to make one lump sum payment to reduce your mortgage balance.

Using our same loan details from above, if you made a one-time extra payment of $5,000 to principal in month 13, you’d save $10,071.67 and reduce your loan term by 31 months.

Amazingly, this single extra mortgage payment would save you money each month for the next 30 years. Just look at the amount of interest paid each month after the extra mortgage payment is made versus the same home loan without extra payments below.

As you can see, payment 14 above consists of $310.30 in interest, while it’s $326.96 for the mortgage without extra payments.

In month 15 we see the same disparity, with $309.74 in interest versus $326.46. So each and every month after the extra payment has been made, interest savings are realized.

Assuming the loan term is 360 months, it’s easy to see how the savings can really add up over time.

Of course, the borrower who pays extra won’t have to make payments the full 360 months because they’ll also wind up paying off their mortgage ahead of schedule.

Now I mentioned that paying extra earlier on in the loan term can save you even more because you can tackle that interest expense before you start paying it off naturally.

For example, if you made that same $5,000 extra payment at the beginning of year six of the mortgage (instead of the beginning of year two), the total savings drop to $7,943.99 and the term is only reduced by 27 months.

## Making an Extra Payment Each Year

- Some homeowners prefer to make an extra payment each year
- Perhaps related to a tax refund check or from a year-end bonus at work
- This is another good strategy to cut your mortgage term and save lots of money
- And ensure that the bonus money you receive is put to good use as opposed to spent frivolously

You could also make one extra lump sum payment at the beginning of each year, perhaps after receiving your year-end bonus.

So let’s say you make a $1,000 bonus payment each year in January, starting in month 13.

That would save you $19,005.22 in interest and shave 85 months (just over 7 years) off your loan term.

As you can see, there are all types of scenarios that abound here, and which one you choose, if any, is up to you.

You might argue that mortgage rates are super cheap, and thus determine that making extra payments now makes little financial sense.

Or you could be living in your dream home and not too far from retirement, with the hopes of living “free and clear” sooner rather than later. If that’s the case, making the extra payments now may be very appealing. Refinancing to a shorter term could also make a lot of sense.

The changes coming to the mortgage interest deduction could also come into play, so be sure to watch news on that front as well.

And know that plans (always) change; homeowners are much more likely to move or refinance their loans as opposed to carrying them out to term.

Read more: Should you pay off the mortgage early?

paulJune 17, 2015 at 5:17 pm -why when you say that we can use a calc to determine what we want to pay to see how it shortens our length of the mortgage you don’t have one. i need a calc to move monthly payments around and see how it shortens the mortgage time. do you have one even in excel.

Colin RobertsonJune 18, 2015 at 9:33 am -Paul,

Good point and I wish had one…it’s in the works. In the meantime you’ll have to find one elsewhere unfortunately.

JustinFebruary 9, 2017 at 12:25 pm -How can you make sure the extra payments are taken off the front of the amortization schedule not the back? Front is better for you, but the bank would like to put them to the back.

Colin RobertsonFebruary 15, 2017 at 2:05 pm -Justin,

Hmm…the extra payment should reduce the outstanding principal balance, which would result in less interest being paid throughout the loan, but the monthly payment wouldn’t be reduced, just paid off earlier.

RyanJuly 20, 2017 at 6:31 pm -I keep getting letters offering reductions in MIP, which sounds good, but what’s the catch? And also read that Trump eliminated these reductions just after taking office, but I still get the offers. Any risk to responding?

DaleJuly 21, 2017 at 8:16 am -I have a 30 year mortgage and started paying extra on my first payment. I plan to go back to the minimum payment after 6 years. After the 6 years I did the math and the interest savings would no longer be worth the extra payments. On a 30 year mortgage, once you pay half the principle you already paid about 85% of the total interest. It takes about 19.5 years to get the principle 1/2 pay off. I would never pay extra payment in the last 10 years of a 30 year loan. It is too late to make substantial savings.

Colin RobertsonJuly 27, 2017 at 10:59 am -Ryan,

Take a look at your current MIP vs. what it is on new loans. And remember MIP is just one piece of the pie. There’s also the rate, and the possibility to refinance and drop MI entirely if your LTV is low enough by leaving the FHA and going conventional.

Colin RobertsonJuly 27, 2017 at 11:01 am -Dale,

Interesting take.