Make Extra Principal Payments
Every dollar you pay beyond your required monthly payment reduces your principal balance directly. Confirm with your lender how to designate extra payments to principal. An extra $100 per month on a $250,000 mortgage at 7% shortens the payoff by approximately 4 years and 10 months and saves approximately $67,000 in total interest.
Make Bi-Weekly Payments
Switching from monthly to bi-weekly payments means you make the equivalent of one extra full payment per year. On a $300,000 mortgage at 7%, bi-weekly payments shorten the payoff by approximately 6 years and 3 months and save approximately $103,000 in total interest.
Apply Windfalls to Principal
Tax refunds, bonuses, and other irregular income applied to principal produce an outsized effect because the balance reduction compounds over the remaining term. A $3,000 lump sum on a $200,000 mortgage at 7% with 25 years remaining saves approximately $13,600 in total interest.
Refinance to a Shorter Term
Refinancing from a 30-year to a 15-year mortgage at a lower rate simultaneously accelerates payoff and reduces total interest. This is only appropriate when you can comfortably afford the higher monthly payment.
A Worked Example: Combining Strategies
On a $280,000 mortgage at 6.75% with 28 years remaining, adding $150/mo extra plus one annual $2,000 windfall payment shortens the payoff by roughly 8 years and 8 months and saves approximately $122,000 in total interest, compared to no acceleration at all -- more impact than either tactic alone, at a combined cost of about $3,800/year.
Common Payoff Mistakes
Making extra payments without confirming principal-only application. Contact your servicer to ensure the extra amount reduces principal rather than prepaying the next due date.
Accelerating a low-rate loan instead of higher-rate debt. If you also carry credit card debt at 20%+, that balance almost always deserves extra payments before a 6% mortgage.
Frequently Asked Questions
How much extra should I pay each month? Any amount helps, but even $50 to $100/mo on a typical mortgage produces a meaningful reduction in total interest -- start with what fits your budget and increase over time.
Is it better to pay extra monthly or in one annual lump sum? Monthly extra payments save slightly more in interest since principal is reduced sooner, but an annual lump sum (like a tax refund) is a reliable option if consistent monthly extra payments aren't feasible.