06/11/2026
Extra, Extra..
One extra mortgage payment per year could save you thousands in interest and shorten your loan term. How can such a small act make such a big difference?
Interest is charged on your remaining principal balance. With an amortized mortgage, early payments go mostly toward interest, keeping your balance higher for longer. When extra payments are earmarked to reduce your balance, interest charges and term length are reduced as well.
Other Benefits of Paying Toward Your Principal
Paying down principal increases home equity faster and helps eliminate the need for private mortgage insurance (PMI). Lenders typically require PMI when your down payment is less than 20%. Once you’ve earned 20% equity, PMI isn’t necessary. Increased equity also provides access to home equity loans and lines of credit.
Potential Drawbacks
Making extra payments may reduce the amount of mortgage interest you can deduct for your taxes. It also ties up cash that could be better used elsewhere. Before attempting this payment strategy, you should first:
Pay off any high-interest credit debt and loans.
Set aside three to six months of emergency savings.
Shore up priority investments such as retirement savings and kids’ education funds.
Repayment Strategies
There are several ways you can make extra payments on your mortgage:
Annual lump-sum payments are an ideal way to spend financial windfalls, such as tax refunds, inheritances and holiday bonuses.
Biweekly payments divide monthly payments in half. But since there are 52 weeks in the year, you make 26 payments, which equates to 13 full payments instead of the normal 12.
Monthly overpayments allow you to pay extra without committing large sums of money. Even $50 per month can make a significant impact over time.
Before making extra payments, make sure that your mortgage does not include any prepayment penalties. It’s also important to clarify that extra payments will go toward your principal balance, rather than your next monthly payment or escrow.
