Morsimo
Guides
Key takeaways
- On a $300,000 loan at 6.5% for 30 years, an extra $100 a month saves about $60,995 in interest and ends the loan 4 years early.
- An extra $200 a month saves about $103,449 and cuts the loan to about 23 years.
- Extra payments help most early in the loan, when the balance is highest.
- Tell your servicer to apply the extra amount to principal, or it may be treated as an early payment.
The numbers: $300,000 at 6.5% for 30 years
The required payment is $1,896.20. Adding a fixed extra amount to every payment, starting with the first, gives:
| Extra per month | Payoff time | Total interest | Interest saved |
|---|---|---|---|
| $0 | 30 years | $382,633 | – |
| $50 | 27 years 10 months | $349,052 | $33,582 |
| $100 | 26 years | $321,639 | $60,995 |
| $200 | 23 years 1 month | $279,185 | $103,449 |
| $500 | 17 years 6 months | $202,874 | $179,759 |
Why it works
Interest is charged each month on the remaining balance. An extra dollar of principal paid now stops that dollar from accruing interest for the rest of the loan, and the savings compound. The same extra payment made in year 20 saves far less because the balance, and the time left, are smaller. The split between interest and principal is explained in the amortization guide.
Make sure it goes to principal
Some servicers hold an extra amount as a prepayment of next month’s bill unless you mark it as principal only. Use the extra-principal option in your servicer’s payment portal, and check the next statement. Confirm your loan has no prepayment penalty; they are uncommon on modern conventional loans but worth checking.
Is it the best use of the money?
Paying down a 6.5% loan is a guaranteed return of 6.5% before taxes, which is hard to match with no risk. It is not always the first priority. Consider an emergency fund, higher-interest debt and any employer retirement match before locking cash into the house, since you cannot easily take principal back out.
Other ways to pay faster
- Bi-weekly payments add roughly one extra monthly payment a year; see the bi-weekly calculator.
- A lump sum with a recast lowers the required payment without refinancing; see the recast calculator.
- Dropping PMI sooner: extra principal reaches the 80% mark earlier. See how PMI works.
Fixed-rate examples with the extra amount paid every month from payment one. Actual savings depend on your servicer’s handling of payments. Not financial advice.