Are Extra Mortgage Payments Worth It? I Ran the Numbers
Recently, I met with one of my best friends, who is trying to follow in my footsteps and retire before 50.
Our conversation eventually turned to mortgages. Because apparently this is what happens when you get older.
She was considering making extra payments toward her mortgage principal.
You've probably heard the advice before: Make one extra mortgage payment a year, and you'll shave years off your loan.
I'd heard an even more impressive version a few years ago on YouTube. An elderly man confidently told viewers:
“If you get a 30-year mortgage and make one extra payment a year, you’ll pay off that mortgage in 20 years.”
Twenty years? That's a pretty big claim.
You're making roughly 20 extra payments, yet somehow eliminating 120 scheduled payments?
That's six months of mortgage payments magically disappearing for every extra payment you make.
Sounds almost too good to be true.
So I spent the weekend doing what any reasonable person would do: building mortgage scenarios instead of doing anything productive.
And what I found surprised me.
WHY MAKING EXTRA MORTGAGE PAYMENTS SAVES INTEREST
Every mortgage payment does two things: pays interest and pays down some principal. How much of that payment goes toward each changes over time.
Early in a mortgage, the balance is at its highest, so more of your payment goes toward interest. As the balance gets smaller, the interest charge gets smaller too.
That's why extra principal payments can pack a surprisingly big punch.
Every dollar you knock off the balance today is a dollar that won't generate interest charges tomorrow. And this can result in fewer total payments needed to pay off a mortgage.
HOW MUCH CAN EXTRA PRINCIAPL PAYMENTS SAVE?
The basic math makes complete sense, but what I really wanted to know was just how powerful this strategy is.
Is the total number of remaining payments reduced by more than the number of extra payments I make?
If I make 20 extra payments, but my total number of payments only reduces by 20, then it’s hard to see the tradeoff. But if it can really take off 120 payments, then I’m interested.
How do the loan amount, interest rate, and term length affect this strategy?
How much of a difference does the timing of extra payments make?
MY MORTGAGE PAYMENT EXPERIMENT
Focusing only on principal and interest, I created scenarios using:
15- and 30-year terms
Interest rates of 2.125%, 4%, and 6.75%
Different loan amounts
I did not include taxes, insurance, and other payments often bundled with mortgage payments.
Then I simulated making one extra payment each year in December. For this experiment, “extra payment” means an additional payment equal to one normal monthly principal-and-interest payment, applied directly to the mortgage principal only.
I found that the loan amount didn't change the result much when everything else was kept proportional. Two loans with different loan amounts but the same interest rate, term length, and number of extra payments will pay down at a similar pace.
The interest rate and term length are the biggest factors in how effective extra payments are.
WHY YOUR MORTGAGE RATE MATTERS
It goes without saying that a higher interest rate will result in higher total interest owed.
What’s surprising is how much difference a percentage point or two can make.
For example, the interest owed on a 30-year, $200,000 loan will be completely different depending on whether the annual interest rate is 2.125%, 4%, or 6.75%.
A seemingly small one- or two-percentage-point difference can add over $100,000 to the total interest owed.
This is because interest keeps getting charged on the remaining balance. The bigger the balance, the bigger the interest bill.
But how do extra payments toward the principal change how long it takes to pay down a loan?
WHAT HAPPENS WITH ONE EXTRA PAYMENT A YEAR?
When adding one extra payment every year, the total interest owed dropped because the principal was being paid down quicker. Nothing surprising about that.
But here's the weird part: the higher the mortgage rate, the more powerful an extra payment becomes.
It turns out, the higher the interest rate, the fewer extra payments you’ll end up making AND the faster the loan is paid off.
At 2.125%, my model required 26 extra payments to shorten the mortgage by three years.
At 6.75%, it took only 24 extra payments to shorten the mortgage by about six years. That's six years off a 30-year mortgage—a 20% shorter loan term.
I was not expecting this. If anything, I thought it would take longer to pay off the loan with the higher interest rate.
This got me thinking: What happens when the loan term is shorter?
WHY YOUR MORTGAGE TERM MATTERS
With less time for interest to accumulate, it’s no surprise that less total interest is owed on a 15-year mortgage than a 30-year mortgage.
But, at the same time, the tradeoff for making extra payments towards the principal drops—a lot.
WHAT HAPPENS WITH A 15-YEAR MORTGAGE?
With a 15-year term, the number of extra payments for each interest rate was the same for all three scenarios.
Higher interest rate loans still benefit more from extra payments. But overall, the reduction in time to pay down the loan isn’t as pronounced.
At the 2.125% interest rate, making 13 extra payments only pays down your loan 15 months sooner. At the 6.75% interest rate, your loan is paid down 21 months—or just 12%—sooner.
DOES TIMING YOUR EXTRA PAYMENT MATTER?
In each of the different scenarios, extra payments were made every December.
I also tested what would happen if extra payments started several months sooner but still spaced evenly apart. In some scenarios, that meant being able to make one additional extra payment.
I expected the timing of the extra payments to make a huge difference. It didn't.
Moving the extra payments earlier shaved only another month or two off the payoff date in my scenarios, even if an additional payment was made.
That's not nothing, but it's certainly not the mortgage-hacking miracle I was expecting.
For fun, I also tested what would happen if one giant lump-sum extra payment was made during the first year instead of breaking it up over several years.
Results were a little better. Aggressively reducing the principal balance early on can shave years off a mortgage.
Whether that makes financial sense, though, is another question.
SO, ARE EXTRA MORTGAGE PAYMENTS WORTH IT?
My personal opinion is that whether making extra payments is worth it or not depends on the mortgage.
With a 30-year mortgage with higher interest rates, extra payments can make a lot of financial sense. Each extra payment can erase thousands in interest and shave off months of future payments.
The lower the interest rate and the shorter the term, the tradeoff between extra payments and future payments becomes less attractive.
And then there's opportunity cost.
If your mortgage rate is 2.125%, every dollar toward the mortgage is effectively giving yourself a guaranteed return roughly equal to that interest rate. Investing that money instead, while not guaranteed, might earn more.
So the decision isn't simply “Which one makes more money?” It's also about risk, liquidity, and what you want your money to do.
There's another downside people don't talk about enough: liquidity.
Money sitting in a mortgage isn't particularly easy to get back out. Before throwing every spare dollar at the principal, make sure you've got an emergency fund and aren't neglecting higher-priority financial goals.
Being mortgage-free is great. Being mortgage-free with $14.72 in your checking account is considerably less impressive.
WAS THE YOUTUBER RIGHT ABOUT PAYING OFF A MORTGAGE IN 20 YEARS?
Testing different term lengths and interest rates made me even more curious about what was said in that YouTube video I mentioned earlier.
“If you get a 30-year mortgage and make one extra payment a year, you’ll pay off that mortgage in 20 years.”
I learned that extra payments were more effective the higher the interest rate. But in my testing, only six months were shaved off when interest was 6.75%.
This meant that the YouTuber must have been referring to a much higher interest rate.
So I kept tweaking the interest rate.
It turns out that at an 11.5% interest rate, you can shorten a 30-year mortgage by 10 years with just 19 extra payments.
Mortgage rates haven’t been that high in decades, but 11.5% wasn't remotely crazy in the early 1980s. Mortgage rates were much higher than that at the peak. And this YouTuber was elderly.
THE BOTTOM LINE
So, yes, the YouTuber could have been right—but only under a mortgage rate that would make most modern borrowers spit out their coffee.
Making one extra mortgage payment a year absolutely can shorten your mortgage and reduce the amount of interest you pay. But the idea that you'll automatically turn a 30-year mortgage into a 20-year mortgage is definitely not a universal rule.
In my scenarios, the results depended heavily on the mortgage rate and term.
A 6.75% 30-year mortgage benefited dramatically more than a 2.125% 15-year mortgage. And making a large lump-sum payment early in the loan could be even more powerful.
But should you throw every extra dollar at your mortgage?
Not necessarily.
Before doing that, I'd consider:
Your mortgage interest rate
How many years are left
Your emergency fund
Other debts
Your investment opportunities
How much you value being debt-free
How much liquidity you want
Prepayment penalties
There is something satisfying about watching a mortgage balance disappear. But so is having money invested and working for you.
And if there's one thing I've learned on my journey to FIRE, it's that there isn't one magic financial move that works for everyone.
See you at the finish line!
Disclaimer: I’m not a licensed financial professional. This blog shares my personal experiences and opinions around money, investing, and early retirement. It’s for informational and educational purposes only—not financial, legal, or tax advice. Always do your own research or consult with a qualified professional before making any financial decisions.
How interesting! This is really making me think outside the box and explore other avenues that could benefit me more. Thank you my friend!