An extra payment on a mortgage goes entirely to principal, which removes it from every future month's interest calculation. That is why a modest extra amount is worth far more than it looks. Enter the loan and the extra you have in mind to see the years and the interest it removes.
Someone already has a mortgage and a spare amount each month, and wants to know what paying it against the loan is actually worth — in years and in interest, not in percentages.
Every dollar of extra payment reduces the balance, and the balance is what next month's interest is calculated on. So an extra dollar does not just save one dollar of interest — it saves interest in every remaining month of the loan. On a thirty-year mortgage, an extra dollar paid in year one is worth roughly three dollars of interest by the end.
On a $300,000 loan at 6.5% over thirty years, adding $200 a month removes 83 months from the term — nearly seven years — and saves $103,448.79 in interest. The extra payments themselves total about $55,000. So the interest saved is roughly double the money paid, and it comes off a loan that would otherwise have run to 2056.
The timing matters as much as the amount. The same $200 paid from the start saves far more than $200 paid from year twenty, because the early payments have decades of interest calculations to influence. An overpayment made in the first year of a mortgage is worth several times one made in the last year.
A monthly extra and a yearly lump sum are not equivalent even when the annual totals match. $200 a month is $2,400 a year; paid as a single $2,400 lump sum at the end of each year it saves less, because the money arrives later and has less time to reduce the balance.
The difference is not enormous but it is consistent. If the choice is between the two, the monthly version wins on arithmetic. The yearly version wins on practicality for anyone whose income arrives in lumps — a bonus, a tax refund, or contract work — and it is still far better than nothing.
The two can be combined, and the calculator handles both at once. A modest monthly extra plus a yearly lump sum is usually the strongest plan available to someone with irregular income.
It assumes the rate never changes, which is true of a fixed-rate mortgage and false of an adjustable one. On an ARM the scheduled payment itself moves, so the baseline this page measures against is not stable, and the comparison becomes approximate rather than exact.
It also assumes there is no prepayment penalty. Most US mortgages have none, but they exist, and a loan with one can make overpaying cost more than it saves. The loan documents say; nothing on a calculator can.
And it assumes the extra payment goes to principal rather than being held as an early payment of next month's instalment. Some servicers apply an overpayment to future instalments by default, which removes none of the interest. The instruction has to be explicit — "apply to principal" — and worth checking on the first statement after the first overpayment.
each month: interest = balance × (APR ÷ 12) balance ← balance − (payment + extra − interest)
There is no closed form for this one, because the extra can be monthly, annual or both, and those do not reduce to a single equation. It is simulated month by month instead — which is also why the no-extra case is tested against the closed-form mortgage payment, to prove the simulation agrees with the arithmetic it is replacing.
A $300,000 loan at 6.5% over thirty years, with $200 added to every monthly payment. The loan is repaid in 277 months instead of 360, which is 6.9 years earlier, and the interest falls from $382,633.47 to $279,184.67 — a saving of $103,448.79. The scheduled payment itself is unchanged at $1,896.20; the extra is entirely on top.
With the extras set to zero, the calculator reproduces the plain mortgage exactly: 360 months, $382,633.47 of interest. This is the baseline every other figure on this page is measured against, and it is worth seeing on its own — the interest exceeds the amount borrowed, which is the fact that makes overpaying worth considering in the first place.
A $200,000 loan at 6% over thirty years with the same $200 a month extra. The scheduled payment is $1,199.10, and the overpayment brings the payoff forward from 360 months to 252 — 108 months, or nine years — while saving $79,800.51 in interest. Note that this saves LESS per dollar of overpayment than Example 1, even though it cuts more years: the rate is lower, so each dollar of balance removed was costing less. A shorter term is not the same thing as a bigger saving.
On a $300,000 loan at 6.5% over thirty years, it saves $103,448.79 in interest and clears the loan 83 months — nearly seven years — early. The saving is larger than the total of the extra payments themselves, because each one also removes interest from every month that follows it.
Monthly, if the annual total is the same, because the money reduces the balance earlier and therefore saves interest for longer. $200 a month saves more than a single $2,400 payment at the end of each year. The yearly version is still worth doing for anyone whose income arrives in lumps.
Not automatically. Some servicers apply an overpayment to next month's instalment by default, which reduces no interest at all. The instruction to apply it to principal usually has to be explicit, and it is worth checking the first statement after the first overpayment to confirm it was applied the way you intended.
Only if the loan carries a prepayment penalty, which most US mortgages do not but some do. Check the loan documents before committing to a plan. Separately, the money has to come from somewhere: overpaying a 6.5% mortgage is a guaranteed 6.5% return, which is a good one, but it is illiquid until the loan is sold.