A guide to paying off your mortgage ahead of schedule, including extra payment methods, amortization math, prepayment penalty checks, and whether early payoff is the right move for you.
Biweekly payments mean 26 half-payments per year (equivalent to 13 full payments instead of 12). On a $300,000 mortgage at 6.5% for 30 years, biweekly payments save about $67,000 in interest and pay off the loan 5 years early.
Round up your monthly payment to the next $100
If your payment is $1,847, round up to $1,900. That extra $53/month adds $636/year in principal reduction. On a $250,000 loan at 6%, this cuts about 3 years off the loan and saves over $30,000 in interest over the life of the mortgage.
Make one extra payment per year using a bonus or tax refund
One additional principal payment per year on a $300,000 mortgage at 6.5% shaves about 4.5 years off the loan and saves roughly $60,000 in interest. Direct the payment to principal only by contacting your servicer or noting it when paying online.
Apply lump sums from windfalls directly to principal
Inheritance, work bonuses, or asset sales can accelerate payoff dramatically. A one-time $10,000 principal payment in year 5 of a $300,000 mortgage at 6.5% saves about $24,000 in total interest. Always specify that lump sums go to principal, not to future payments.
Understand Amortization Impact
Review your amortization schedule to see how much goes to interest vs principal
In the first year of a 30-year $300,000 mortgage at 6.5%, about $19,300 goes to interest and only $4,200 goes to principal. By year 15, the split evens out. Extra payments in the first 10 years have the biggest impact because they eliminate the most interest.
Run an amortization calculator with extra payments to see your new payoff date
Free online amortization calculators let you add extra monthly, annual, or one-time payments to see the exact payoff date and total interest savings. Seeing that $200/month extra cuts 8 years off your mortgage provides strong motivation.
Calculate total interest saved for each extra payment scenario
On a $250,000 loan at 6% over 30 years, total interest is about $289,000. Adding $300/month reduces total interest to about $170,000, saving $119,000. Always compare total cost (principal + interest) rather than just monthly payment amounts.
Check for Prepayment Penalties
Read your mortgage contract for any prepayment penalty clause
Prepayment penalties are rare on mortgages originated after 2014 due to federal regulations, but older loans or non-qualified mortgages may still have them. The penalty is typically 2-3% of the outstanding balance, which on a $250,000 loan is $5,000-$7,500.
Call your loan servicer to confirm prepayment terms in writing
Even if your contract looks clear, call your servicer and ask specifically: "Is there any penalty for making extra principal payments or paying off the loan early?" Request written confirmation. Some servicers misapply extra payments to future months instead of principal.
Verify your servicer applies extra payments to principal correctly
After making your first extra payment, log into your account and verify the principal balance dropped by the exact extra amount. Some servicers hold extra funds in escrow or apply them to the next month's payment. If misapplied, call immediately and request correction.
Evaluate Opportunity Cost
Compare your mortgage rate to expected investment returns
If your mortgage rate is 3.5% and the stock market has historically returned 7-10% annually, investing extra cash may produce more wealth than paying off the mortgage early. If your rate is 6.5%, the guaranteed return of eliminating that interest is harder to beat.
Ensure high-interest debts are paid off before extra mortgage payments
Credit card debt at 18-25% APR should always be eliminated before making extra mortgage payments at 5-7%. Every dollar toward a 22% credit card saves 3-4 times more interest than a dollar toward a 6% mortgage. Pay off all consumer debt first.
Verify your emergency fund is fully funded before accelerating payoff
Keep 3-6 months of expenses in cash before aggressively paying down your mortgage. Extra mortgage payments are not easily accessible if you lose your job. You cannot quickly withdraw equity from your home without refinancing or selling.
Max out tax-advantaged retirement accounts before extra mortgage payments
Contributing to a 401(k) up to the employer match is effectively a 50-100% instant return. Maxing out Roth IRA contributions ($7,000 for 2024) provides tax-free growth. Both generally outperform the guaranteed return of mortgage prepayment.
Consider Refinancing as an Alternative
Check if refinancing to a shorter term saves more than extra payments
Refinancing from a 30-year to a 15-year mortgage typically lowers your rate by 0.50-0.75%. On a $250,000 balance, switching from 6.5% (30-year) to 5.75% (15-year) saves over $150,000 in total interest, though monthly payments increase by $500-$700.
Calculate closing costs and break-even point for a refinance
Refinancing closing costs are typically 2-5% of the loan amount ($5,000-$12,500 on a $250,000 loan). Divide closing costs by monthly savings to find your break-even point. If you save $200/month and closing costs are $6,000, break-even is 30 months. Only refinance if you'll stay past break-even.
Compare making extra payments on your current loan vs refinancing
Extra payments on your current loan cost nothing upfront and provide flexibility (you can stop anytime). Refinancing locks you into higher required payments but may offer a lower rate. If your current rate is already competitive, extra payments often win because there are no closing costs.
Set Your Payoff Timeline
Set a target payoff date and the monthly extra payment needed to hit it
Use an amortization calculator to work backward. If you have 25 years left and want to pay off in 15, enter the remaining balance and 15-year term to find the required monthly payment. The difference between that and your current payment is your extra principal amount.
Set up automatic extra principal payments to stay on track
Automate extra payments so they happen without willpower. Many servicers let you set up a separate auto-draft for additional principal. If your regular payment is $1,800, set up a second auto-draft for $200 on the 15th of each month to keep it separate.
Track your progress quarterly against the accelerated amortization schedule
Print or save your accelerated amortization schedule and compare your actual balance against it every 3 months. Seeing the balance drop faster than the original schedule provides motivation. If you fall behind, adjust your extra payment amount rather than abandoning the plan.
Frequently Asked Questions
Is it worth paying off my mortgage early if I have a low interest rate?
If your rate is below 4-5%, investing extra cash (historically 7-10% stock returns) may produce better results. Being debt-free provides psychological benefits and cash flow flexibility. It depends on risk tolerance, other debts, and retirement progress. A financial advisor can model both scenarios.
How much does one extra mortgage payment per year save?
On a $300,000 mortgage at 6.5% over 30 years, one extra annual payment saves $60,000-$80,000 in interest and cuts 4-5 years off the term. Even rounding up by $100-$200/month produces significant long-term savings.
Should I refinance or just make extra payments?
Refinancing makes sense when you can drop your rate by 0.75-1.0%+ and stay long enough to recoup $3,000-$8,000 in closing costs (break-even in 2-4 years). If your rate is already competitive, extra principal payments work without any closing costs.
Do I need to tell my lender that extra payments should go to principal?
Yes. Many lenders apply extras to the next full payment rather than principal unless specified. Mark payments as additional principal in the online portal and verify on your next statement that the outstanding balance decreased.