Making extra payments on your mortgage is one of the highest-return, zero-risk financial moves you can make. Here's the actual math.
How extra payments work
When you make an extra payment and designate it as "principal only," it reduces your outstanding balance immediately. Less balance means less interest accrues next month. That savings compounds every month for the rest of the loan.
The earlier, the better
Extra payments made early in the loan have a much larger impact than extra payments made later. In the early years, almost all of your regular payment goes to interest — so extra principal directly reduces the balance that's generating all that interest.
Bi-weekly payment strategy
Instead of making 12 monthly payments, make 26 bi-weekly half-payments. Since there are 52 weeks in a year, you end up making 13 full payments per year instead of 12 — one extra per year. On a 6.75% loan, that shaves about 6 years off a 30-year mortgage (less at lower rates) with no extra budget required.
Should you pay extra or invest?
If your mortgage rate is 7%, paying it down is a guaranteed 7% return. If you can earn more than that investing, the math favors investing. This is a personal decision that depends on your rate, risk tolerance, and tax situation. Many people do a combination of both.
Always confirm with your servicer that extra payments are applied to principal, not future payments. Specify this clearly when submitting additional payments.