The Concept
Extra payments don't change your required monthly payment — they reduce the principal balance directly, which means every subsequent month accrues interest on a smaller number, creating a compounding acceleration effect.
New Balance = Old Balance − (Principal Portion + Extra Payment)
Common Mistakes
- Not confirming extra payments are applied to principal, not future payments — some lenders default to the latter unless you specify.
- Underestimating the impact of small extra amounts — even $50/month makes a meaningful dent over 30 years.
- Paying extra on a low-interest mortgage instead of investing — if your mortgage rate is below expected investment returns, extra payments may not be the optimal use of that money.
Quick Reference
One extra full payment per year (13 payments instead of 12) can cut a 30-year mortgage down to roughly 25 years.
Frequently Asked Questions
What is loan recasting?
Some lenders let you make a large lump-sum payment and then "recast" the loan, which recalculates your required monthly payment lower while keeping the original term — different from simply prepaying, which shortens the term instead.
Are there penalties for paying off a mortgage early?
Some loans include prepayment penalties, particularly in the first few years — always check your loan terms before committing to an aggressive extra-payment strategy.
