Making Additional Home Loan Payments?

Accelerated Repayment Can Save You Money!

Shave years off your loan and save money by paying more than your regularly scheduled amount. How much money can you save? Find out now. Fill out this calculator, including the additional amount and the number of times you will make that increased contribution each year. The calculation results will show how much interest you save & how much quicker your loan will be paid off.

The second tab contains usage instructions and examples for entering recurring payments, one-time payments, or a combination of the two.

• Calculator
• Instructions
• Rates

Save Money By Refinancing Your 4.5% APR 30-year $260,000.00 Home Loan Today

The following table highlights current mortgage rates. By default 30-year refinance loans are displayed. Clicking on the purchase button switches loans to new home purchases. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.

Annual Amortization Schedule for Your $260,000 Home Loan With Extra Payments

Example table for a loan which began in November of 2022, with extra payments beginning 2 years later.

Beginning Year	No Extra Payments	With Extra Payments
2023	$259,275.85	$259,275.85
2024	$254,823.03	$254,823.03
2025	$250,179.55	$249,177.80
2026	$245,337.24	$238,175.74
2027	$240,287.60	$226,702.60
2028	$235,021.75	$214,738.21
2029	$229,530.42	$202,261.52
2030	$223,803.96	$189,250.60
2031	$217,832.30	$175,682.58
2032	$211,604.96	$161,533.61
2033	$205,110.97	$146,778.80
2034	$198,338.92	$131,392.23
2035	$191,276.90	$115,346.83
2036	$183,912.50	$98,614.40
2037	$176,232.78	$81,165.52
2038	$168,224.22	$62,969.52
2039	$159,872.75	$43,994.39
2040	$151,163.69	$24,206.80
2041	$142,081.73	$3,571.93
2042	$132,610.89	$0.00
2043	$122,734.53	$0.00
2044	$112,435.28	$0.00
2045	$101,695.05	$0.00
2046	$90,494.93	$0.00
2047	$78,815.25	$0.00
2048	$66,635.47	$0.00
2049	$53,934.17	$0.00
2050	$40,689.03	$0.00
2051	$26,876.77	$0.00
2052	$12,473.08	$0.00
2053	$0.00	$0.00

Maximize Your Mortgage Savings with Additional Payments

When you first obtain a home loan, you were probably not thinking about paying it off early (at least not yet). After all, you chose your payment schedule to suit your income and your lifestyle. And like most people, you probably chose the option with the most affordable monthly payments.

While three decades is a long time, you probably didn’t mind as long as you got a mortgage with affordable payments. If you had low to moderate income, a 30-year fixed loan was probably your only available option. But as with all loans, the more you pay today, the less you pay tomorrow. You realize you’ll end up paying more interest with a longer loan. You could even be paying your mortgage well into retirement.

But over the years, perhaps your salary increased after a promotion or success from a business. As you build your income, you’ll have extra money for savings and other important expenses. And once you do, consider making extra payments toward your mortgage. Making extra payments can help you save on interest charges and pay off your mortgage early. Read on to learn how additional mortgage payments can work for you.

Factors That Impact Mortgage Payments

To understand how extra payments can help you save, let’s review factors that determine monthly principal and interest (P+I) payments. Monthly P+I payments depend on three key variables:

1. The size of your principal – this is your actual loan amount
2. Interest rate – based on the annual percentage rate (APR)
3. Payment term – the length of time it takes to pay off your loan

When your principal and interest rate is high, your monthly payment increases. And if you extend the payment term, your monthly payment decreases. But don’t think you’re paying less. Because it takes a longer time to pay, it generates higher interest charges. Likewise, when you shorten the term, it raises your monthly payments but significantly decreases interest charges.

To help you understand how this works, let’s take the example below. The following chart compares a 30-year fixed mortgage with a 15-year fixed-rate loan. Notice how the extended term results in expensive interest charges despite the affordable monthly payment.

Loan Amount: $288,000

Mortgage	30-Year Fixed	15-Year Fixed	Difference
Rate (APR)	3.5%	3.2%	0.3%
Monthly Payment	$1,293.25	$2,016.69	$1,887.44
Total Interest Cost	$177,569.53	$75,005.04	$102,564.49

According to the chart, the 30-year fixed mortgage monthly payment is $1,887.44 cheaper than the 15-year fixed-rate loan. However, because the 30-year fixed term is twice as long as a 15-year mortgage, it generates a total of $177,569.53 interest charges. This is $102,564.49 more expensive than a 15-year fixed loan, which only charged $75,005.04 in overall interest.

On the other hand, the 15-year fixed term’s monthly payment is almost twice the amount of the 30-year fixed mortgage. Many homebuyers with limited funds cannot afford to make such expensive payments. If you don’t have a stellar credit history, you may not qualify for a shorter term.

However, don’t worry. This is where extra mortgage payments come in handy. It’s an alternative way to shorten your loan and reduce your interest costs. Use it as a financial strategy to shave years off your mortgage, especially if you cannot refinance into a 15-year term.

Compared to a 15-year term, paying extra gives you the freedom to decide how much you can add to your mortgage payments. This can be as small as $50 a month, $200 a month, or even a large lump sum amount. It does not cause financial strain on your budget. For example, if you can only afford an extra $100 this month, it’s no problem. On the other hand, if you fail to cover monthly payments for a 15-year term, it puts you at risk of default. Thus, extra payments are the safer option if your budget is really tight.

Lenders impose prepayment penalties to discourage consumers from prepaying their loan, selling their home early, or refinancing their mortgage. Early repayment means lenders lose profits they could have earned from interest.

Prior to 2014, some conventional lenders required steep prepayment penalties that stretched for the entire loan. But to protect consumers, the CFPB placed rules that only allowed prepayment penalties for the first 3 years of a mortgage. However, for loans that originated before 2014, this law is not retroactive. If you took a mortgage before 2014, learn more about your prepayment penalty rules.

Conventional mortgages usually have a prepayment penalty clause, though you can choose a loan without one. On the other hand, government-backed loans such as FHA loans, VA loans, and USDA loans do not impose prepayment penalties. You can make additional payments without worrying about expensive costs.

Understanding How Extra Mortgage Payments Work

Additional mortgage payments have the greatest effect when you apply them early. This is another reason why lenders discourage extra payments for the first 3 years of a loan. Since your principal is largest during this time, it generates high interest charges. If you make extra payments at the beginning of your mortgage, this significantly diminishes the principal, therefore reducing your interest charges. It lowers future interest on your mortgage.

To show you how this works, let’s compare two 30-year fixed mortgages with the same variables. The first one makes extra payments at the start of the term, while the second one starts making extra payments by the sixth year. We used the calculator on top the determine the results.

30-Year Fixed Mortgage
Principal Loan Amount: $288,000
Rate (APR): 3.5%
Extra Payment: $100 per month

Loan	Original Amount	1st Year Start of Extra Payments	6th Year Start of Extra Payments
Monthly Payment	$1,257.33	$1,357.33	$1,357.33
Overall Interest	$172,637.05	$148,988.61	$157,018.39
Pay-off Time	30 years	26 years 5 months	27 years 3 months
Time Saved	None	3 years 7 months	2 years 9 months
Interest Saved	None	$23,648.44	$15,618.66

*All calculations above and below only account for principal and interest (P+I); they do not include property taxes and home insurance.

According to the results, you’ll prepay your mortgage by 3 years and 7 months if you make extra payments of $100 at the start of your mortgage. Meanwhile, you’ll cut 2 years and 9 months from your term when you start making extra payments by the 6th year. While both scenarios shorten your payment term, making additional payments at the beginning of your mortgage saves more time.

Furthermore, you’ll save considerably more on interest charges the earlier you make extra payments. Based on our example, you’ll save $23,648.44 on total interest if you make extra payments at the start of your mortgage. Meanwhile, you’ll save $15,618.66 on total interest if you make additional payments on the 6th year. And though it’s lower, this is still a considerable sum. That’s money that can go to your emergency savings, home repairs, or retirement funds. Consider making extra payments even after a couple of years has passed on your loan.

Each small extra payment does not make a huge difference immediately. However, it has a compounding impact over the life of the loan. For example, a 5% rate of interest on a payment of $1,200 will save $5 in monthly interest expenses. Over 30 years, that can amount to $1,800 in interest savings.

Next, consider increasing your extra payments if you have enough room in your budget. Logically, this will further reduce your interest charges and shave more years off your payment term. If you can’t make higher extra payments right away, you can start off with $50 a month, then you can increase it to $100, $150, and so on.

Using our calculator above, let’s compare how much time and money you can save based on your extra payment amount. For example, suppose your home is priced at $325,000 and you made a down payment worth $65,000. You took a 30-year fixed mortgage at 3.5% APR and your principal loan amount is $260,000. You decide to start making extra payments on the third year of your loan. The following chart estimates how much you’ll save if you pay an extra $50, $100, or $200 per month.

30-Year Fixed Mortgage
Principal Loan Amount: $260,000
Rate (APR): 3.5%

Loan	Original Payment	Extra $50 / month	Extra $100 / month	Extra $200 / month
Monthly Payment (P+I)	$1,167.52	$1,217.52	$1,267.52	$1,367.52
Pay-off Time	30 years	28 years 2 months	26 years 6 months	23 years 10 months
Time Saved	0	1 year 10 months	3 years 6 months	6 years 2 months
Total Interest	$160,305.83	$149,526.42	$140,324.39	$125,415.21
Total Interest Savings	0	$10,779.41	$19,981.44	$34,890.61

The results show that you’ll make the most interest savings if you pay $200 per month on your mortgage. You’ll save a total of $34,890.61 on interest charges and you’ll pay off your loan within 23 years and 6 months. With just $200 per month, you removed 6 years and two months off your mortgage. On the other hand, if you decide to pay extra $100 per month, you’ll save $19,981.44 on total interest costs. You’ll pay off your mortgage earlier by 3 years and 6 months. Finally, if you set aside $50 per month for extra mortgage payments, you’ll remove 1 year and 10 months off your payment term. You’ll also save a total of $10,779.41 on interest charges.

While a larger amount helps reduce your payment term, it’s worth noting that even small amounts can still help you avoid thousands worth of interest charges. Even if it’s just $50 or less, it’s worth making additional payments on your mortgage.

Different Ways to Apply Additional Payments

Besides extra monthly payments, there are other payment strategies you can adapt to reduce your mortgage term. These include making lump sum payments or shifting to a biweekly payment schedule while making additional payments. Here are different payment methods you can try:

Make a 13th Loan Payment Each Year

Most homeowners normally make monthly mortgage payments, which is equivalent to 12 payments annually. To pay extra on your mortgage, you can make an additional 13th payment. To make it easier, you can time this when you get large work bonuses or tax returns within the year. It’s a good way to use extra funds instead of completely splurging on other expenses. You can make your 13th payment at the beginning of the year or towards the end of the year.

The following example shows how much time and money you can save when you make a 13^th mortgage payment every year, starting from the first year of your loan. You can also use the calculator on top to estimate extra payments you make once a year.

30-Year Fixed Mortgage
Principal Loan Amount: $260,000
Rate (APR): 3.5%

Loan	Original Payment	With 13th Payment Each Year
Extra Mortgage Payment	0	$1,167.52 (once a year)
Monthly Payment (P+I)	$1,167.52	$1,167.52
Pay-off Time	30 years	26 years 3 months
Time Saved	0	3 years 9 months
Total Interest	$160,305.83	$137,454.16
Total Interest Savings	0	$22,851.67

In this example, the results show you can save $22,851.67 on interest charges by making a 13^th mortgage payment each year. You’ll pay down your loan early by 3 years and 9 months.

Make a One-Time Lump-Sum Contribution

Another payment strategy you can do is to make a large lump-sum payment. If you get an unexpected bonus from work or an inheritance, you can quickly apply it toward the principal owed on your home. Now and then, you might stumble upon funds left by one of your relatives. You might even receive a windfall from your business. Use this large fund to shorten your mortgage term and diminish your interest costs. Likewise, if you keep making extra monthly mortgage payments, this will further reduce your term and interest charges.

The above calculator supports recurring weekly, biweekly, monthly, quarterly, or annual payments along with one-off lump sum contributions. Make sure you enter the frequency of contribution you would like to make, when the contribution begins, and the amount of each contribution. Then click on the ‘calculate’ button to quickly see how much you’ll save.

The following chart shows how much you can save based on a one-time lump-sum payment of $60,000. The payment is applied during the third year of the loan.

30-Year Fixed Mortgage
Principal Loan Amount: $260,000
Rate (APR): 3.5%

Loan	Original Payment	Lump-Sum Payment
Extra Mortgage Payment	0	$60,000 (one-time payment)
Monthly Payment (P+I)	$1,167.52	$1,167.52
Pay-off Time	30 years	20 years 6 months
Time Saved	0	9 years 6 months
Total Interest	$160,305.83	$86,096.56
Total Interest Savings	0	$74,209.27

The example shows that if you make a $60,000 lump-sum payment on your mortgage during the third year, you’ll save a total of $74,209.27 on interest costs. This large amount will cut 9 years and 6 months from your payment term. You’ll get to pay off your mortgage almost 10 years earlier.

Winning with Bi-Weekly Payments

Bi-weekly payments are another way to create the equivalent of a 13th month payment. There are 52 weeks in a year, which means there are 26 biweekly periods. If you pay half of your monthly payment 26 times a year, it’s equivalent to making 13 monthly payments. Plus, nothing prevents you from combining bi-weekly payments with other extra payments. If your salary comes in a bi-weekly schedule, you can time this with your mortgage payments. You can also set automated transfers during payday to ensure you don’t forget mortgage payments.

The following chart shows how much you can save by making extra biweekly payments worth $50 or $200 on your mortgage. This presumes you’re making bi-weekly payments at the start of your loan.

30-Year Fixed Mortgage
Principal Loan Amount: $260,000
Rate (APR): 3.5%
Monthly Payment: $1,167.52
Biweekly Payment: $583.76

Loan	Monthly Payment	Bi-weekly with Extra $50	Bi-weekly with Extra $200
Periodic Payment (P+I)	$1,167.52	$633.76	$783.76
Pay-off Time	30 years	24 years 6 months	23 years
Time Saved	0	6 years 6 months	7 years
Total Interest	$160,305.83	$119,177	$85,213
Total Interest Savings	0	$41,128	$75,092

According to this example, if you choose a bi-weekly payment plan and pay an extra $50 every pay period, you’ll save $41,128 on total interest charges. You’ll also shorten your payment term to 24 years and 6 months. Meanwhile, if you have a bi-weekly payment schedule and pay an extra $200 on every pay period, you’ll save $75,092. Adding $200 on your bi-weekly mortgage payments shortens your term by 7 years.

What if I can’t arrange bi-weekly payments? In some cases, your lender might not offer a bi-weekly payment schedule. But don’t fret. You can still produce a similar effect by adding a specific amount to your monthly mortgage payments. Take the amount of your mortgage payment and divide it by 12. The following amount is the extra payment that must be applied to your principal each month.

For instance, your monthly mortgage payment is $1,167.52. If we divide it by 12, the resulting amount will be $97.30. This is the extra payment you must make on your mortgage per month. Likewise, if you can spare extra funds, increasing the amount will yield more interest savings.

Prioritize Your Finances

While making extra payments to your mortgage is advantageous, there are cases where it’s better to allocate your money towards other important expenses. Making extra mortgage payments can eat up a large part of your monthly budget, which means you have less money going toward savings. This can prevent you from making valuable purchases or investing in lucrative business ventures.

Financial experts suggest families should have at least 6 months to a year’s worth of expenses in emergency funds. If you prioritize your mortgage, you might not have enough for a rainy day. Moreover, you should also think about having enough savings for your retirement fund.

Next, if you have other high interest debts, such as credit card bills, it makes sense to prioritize them first. After all, unsecured debt such as credit cards are not tax deductible. Interest on mortgage, on the other hand, is tax deductible. High interest debt will also eat away your savings, so make sure to pay them down first.

Finally, do you have immediate expenses you need to take care of? Things like childcare services and having your home or car repaired should be the priority. If your budget does not leave extra money for your mortgage, that’s alright. You can try again next time when you have even a little to spare. Make sure to reflect on your financial goals before dedicating a significant portion of your salary to your home loan.

In Summary

Making extra mortgage payments are a good way to reduce your interest charges and shorten your term. It’s a viable option if you have extra income but cannot afford to refinance to a shorter term. But before you make additional mortgage payments, make sure to ask your lender about prepayment penalty. Paying expensive penalty fees defeats the purpose of gaining savings on extra payments.

There are different ways you can apply extra payments. The easiest way is to make additional monthly payments to your mortgage. If you have a windfall, you can put a one-time lump-sum payment toward your mortgage. In other cases, you can take a bi-weekly payment plan and make extra payments to pay off your mortgage faster. Whatever strategy you take depends on your preference.

Some people struggle with discipline, while others prefer a fixed routine. One person might find it easier to automatically pay a bit more each month, while another might get a sense of accomplishment by making a larger payment at once. At the end of the day, you should choose the method that helps you keep paying extra. Automated habits routinely beat out our best stated intentions.

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