What an extra $100, $200 or $500 a month does to a 30-year mortgage

On a $280,000 mortgage at 6.5%, paying an extra $200 a month toward principal saves about $101,000 in interest and ends the loan 7 years and 3 months early. Here is why small extra payments have such a big effect, with the numbers for several amounts.

The loan

We used LifeCalculator's mortgage calculator for a common case: a $350,000 home with 20% down, so a $280,000 loan, at 6.5% for 30 years. The principal-and-interest payment is $1,769.79 a month. With property tax at 1.1% of value and $1,800 a year in insurance, the full payment is about $2,241.

Over 30 years, that loan costs $357,125 in interest, more than the amount borrowed.

Why early payments are mostly interest

Each month, the lender charges interest on the balance you still owe: 6.5% ÷ 12 × $280,000 is about $1,517 in the first month. Only about $253 of the first $1,770 payment reduces the loan. The share going to principal grows slowly as the balance falls. It is not until about year 20 that more of each payment goes to principal than to interest.

Every extra dollar of principal skips that line. It lowers the balance immediately, so every future month's interest is calculated on a smaller number. That saving compounds for the rest of the loan.

The results

An extra $100 a month adds up to about $31,000 over the life of the shorter loan, and it saves about $60,000 in interest. Each extra dollar saves roughly two.

Extra payments or a 15-year mortgage?

A 15-year mortgage usually comes with a lower rate. At 5.875% on the same $280,000, the principal-and-interest payment is $2,343.93, about $574 more per month than the 30-year loan. Total interest drops to $141,908.

Paying an extra $500 a month on the 30-year loan gets close: paid off in 17 years with $183,540 of interest. The 15-year loan still wins on cost because of its lower rate. The 30-year loan with extra payments wins on flexibility. If money gets tight, you can stop the extra payments at any time, while the 15-year payment is required every month.

Many people choose the 30-year loan and prepay for exactly that reason. It is a reasonable trade: you pay a bit more interest in return for a lower required payment.

When extra payments are not the best use of money

Prepaying a mortgage is a guaranteed return equal to your interest rate. That is a good deal at 6.5%, but it isn't always the first priority:

• Build an emergency fund first. Money sent to the mortgage is locked in the house. You can't get it back without selling or borrowing. See how big an emergency fund should be.
• Pay off higher-rate debt first. A credit card at 24% costs far more than a mortgage at 6.5%.
• Take any employer retirement match. A 50% or 100% match beats any mortgage rate.
• Low-rate mortgages. If your rate is 3%, you may earn more by investing the extra money, though with more risk.

How to make extra payments count

• Tell the lender, in writing or in the online payment form, to apply the extra amount to principal. Otherwise some lenders hold it as an early payment of next month's bill.
• Check that your loan has no prepayment penalty. Most U.S. home loans made since 2014 don't, but confirm it in your paperwork.
• Check your statement after the first extra payment to make sure the principal balance dropped by the right amount.

Try your own loan in the mortgage calculator. Enter your balance, rate and remaining term, then change the extra payment to see the payoff date and interest saved. The Excel download includes the full month-by-month schedule with live formulas.