What an extra mortgage payment actually does
An extra mortgage payment reduces the principal balance of your loan, which means you owe less money to the lender. When you make your regular monthly payment, part of it goes to interest and part goes to principal. An extra payment goes almost entirely to principal because you are not paying a month's interest — you are straightforward paying down what you borrowed.
The result is that you pay off your mortgage faster and pay less total interest over the life of the loan. If you have a 30-year mortgage and make one extra payment per year, you can shorten the loan to roughly 26 years, depending on your interest rate and how far into the loan you are. The earlier you start making extra payments, the more interest you save.
Not all lenders handle extra payments the same way. Some automatically explore the money to principal. Others require you to specify that the payment is an extra principal payment, or they may hold the money in an escrow account until you request it be applied. Before you send extra money, contact your lender to confirm how they process it and whether there are any fees or restrictions.
Key Takeaways
- An extra mortgage payment reduces your principal balance and shortens the time you spend paying off the loan.
- You must tell your lender that the payment is an extra principal payment, or they may explore it to next month's regular payment instead.
- Making extra payments early in the loan saves more interest than making them late, because you reduce the balance that future interest accrues on.
- Some lenders charge fees for extra payments or require them to be made on specific dates, so confirm your lender's rules before sending money.
How to send an extra payment to your lender
Contact your mortgage servicer — the company that collects your monthly payment — and ask how they accept extra principal payments. Most servicers allow you to pay online through their website or mobile app, by phone, by mail, or through automatic bank transfers. Some have a specific form you fill out to designate the payment as principal-only.
If you pay online or by phone, look for an option that says "extra principal payment," "principal-only payment," or "pay down principal." Do not straightforward send extra money with your regular payment, because many servicers will treat it as a prepayment toward next month's bill rather than reducing your principal now.
If you mail a check, write a separate check for the extra amount and include a letter stating that the payment should be applied to principal only. Include your loan number and the phrase "principal reduction" or "extra principal payment" in the memo line. Mail it to the address your servicer provides for extra payments — this is often different from the address for regular payments.
Keep a record of every extra payment you make, including the date, amount, confirmation number, and the servicer's name. Request a written confirmation from your lender after each extra payment, showing that it was applied to principal. This protects you if there is ever a dispute about your loan balance.
When extra payments save you the most money
The earlier in your loan you make extra payments, the more interest you save. This is because interest is calculated on your remaining balance. If you have a $300,000 loan at 5% interest, the first month's interest is much higher than the last month's interest. By reducing the balance early, you reduce the amount that interest accrues on for years to come.
For example, if you make an extra $200 payment in year one of a 30-year loan, that $200 stops earning interest for the lender for the next 29 years. If you make the same $200 payment in year 25, it only stops earning interest for the remaining 5 years. The earlier payment saves far more in total interest.
This does not mean you should never make extra payments late in the loan. Any extra principal payment reduces what you owe and shortens your payoff date. But if you have limited money to put toward extra payments, directing it to the early years of your mortgage produces the largest benefit.
Comparing extra payments to other uses of that money
Before committing to extra mortgage payments, consider whether that money might be better used elsewhere. If you have high-interest debt — credit cards, personal loans, or car loans — paying those down first usually saves more money than paying extra on a mortgage, because the interest rates are higher.
If you have no emergency fund, building one should come before extra mortgage payments. An emergency fund protects you from going into debt if your car breaks down or you face a medical bill. Without one, you may end up borrowing at high interest rates, which costs more than the interest you save on your mortgage.
If you have a low mortgage interest rate — below 4%, for instance — and you have money in a savings account earning less than that rate, you might consider investing the money instead of paying down the mortgage. This is a personal decision that depends on your comfort with investment risk and your financial goals. A financial advisor can help you weigh these options for your situation.
Biweekly payment plans and other structured approaches
Some people make extra mortgage payments by switching to a biweekly payment schedule instead of monthly. With biweekly payments, you pay half your monthly mortgage every two weeks. Because there are 26 two-week periods in a year and only 12 months, you end up making 13 full monthly payments per year instead of 12 — the equivalent of one extra payment.
Biweekly plans can be set up directly with your lender or through a third-party service. If you use a third-party service, confirm that they are legitimate and understand their fees. Some charge a setup fee or a per-payment fee. Your lender may offer biweekly payments for free, so ask before paying a service to arrange it.
Another approach is to add a fixed amount to your regular payment each month — for example, paying $1,350 instead of $1,200. This is simpler than making separate extra payments and reduces the risk that your lender will misapply the money. Just confirm with your lender that the extra amount will go to principal.
What to watch out for
Some lenders charge a fee for extra principal payments or restrict when you can make them. A few older mortgages include a prepayment penalty, which means you pay a fee if you pay off the loan faster than the original schedule. Check your mortgage documents or call your lender to confirm whether your loan has a prepayment penalty before making extra payments.
If you have an escrow account — money held by your lender for property taxes and homeowners insurance — do not assume that extra payments reduce your escrow balance. Extra principal payments reduce your loan balance only. Your escrow account is separate, and your lender will adjust it based on your tax and insurance bills, not on extra payments you make.
Be cautious of third-party services that offer to manage extra mortgage payments for you or that claim to have special relationships with lenders. You can make extra payments directly to your lender for free. Any service charging you to do this is taking a cut of money that could go to reducing your debt.
How extra payments show up on your loan statement
After you make an extra principal payment, your next mortgage statement should show a lower principal balance than it would have without the payment. The statement will typically list the extra payment separately from your regular monthly payment, or it will show the principal balance decreasing by more than usual.
Your monthly payment amount does not change when you make extra principal payments. The lender does not recalculate your payment to be lower. Instead, you keep paying the same amount each month, and the extra payments straightforward shorten how many months you will need to make that payment. Some lenders offer the option to recalculate your payment lower after extra payments, but this is not automatic and may not be worth doing if you are close to paying off the loan.
If your statement does not reflect the extra payment within one or two billing cycles, contact your lender when ready. Errors happen, and you want to catch them early so the payment is applied correctly.
Frequently Asked Questions
Can I make an extra mortgage payment whenever I want?
Most lenders allow extra payments at any time, but some require them to be made on specific dates or in minimum amounts. A few older mortgages have prepayment penalties. Contact your lender to confirm their rules before sending extra money. If there are restrictions, ask whether they explore to all extra payments or only to very large ones.
What if I want to stop making extra payments later?
You can stop making extra payments at any time. Your regular monthly payment stays the same, and you straightforward resume paying only that amount. There is no penalty for stopping extra payments. However, you will not get back the money you already paid extra — it has reduced your principal balance and will remain applied to your loan.
Does making an extra payment hurt my credit score?
No. Paying down your mortgage faster does not hurt your credit. In fact, reducing your debt can help your credit score over time by lowering your overall debt-to-income ratio. Making extra payments shows that you are managing your debt responsibly.
Should I make extra payments if I have a very low interest rate?
This depends on your other financial priorities and your comfort with alternatives. If your mortgage rate is 2% or 3% and you have high-interest debt or no emergency fund, those should come first. If you have stable finances and want to own your home free and clear sooner, extra payments make sense even at a low rate.
What happens to my extra payments if I sell the house?
The extra payments reduce your loan balance, so you owe less when you sell. The lender pays off the remaining balance from the sale proceeds, and you keep the difference. There is no separate accounting for extra payments — they straightforward lower what you owe at the time of sale.