How Much Does One Extra Mortgage Payment Really Save?

The formula: why extra payments compound

The calculator first computes the loan's standard required monthly payment using the amortization formula, then simulates the balance declining month by month under two scenarios: the required payment alone, and the required payment plus a fixed extra amount. Each month, that month's interest (balance × monthly rate) is added to the balance and the full payment is subtracted; the loan is paid off once the simulated balance reaches zero.

Because interest is recalculated on a smaller balance every month an extra payment has been applied, the benefit compounds over the life of the loan rather than accumulating in a straight line — an extra dollar paid in year one saves more total interest than the same dollar paid in year twenty, since it stops accruing interest for far longer.

• Required payment M = P × [r(1+r)^n] ÷ [(1+r)^n − 1], where P = balance, r = annual rate ÷ 12, n = term in months
• Each month: interest = balance × r; balance = balance + interest − (M + extra)
• Interest saved = original-schedule total interest − accelerated-schedule total interest

Worked example: $300,000 at 6% over 30 years

A $300,000 balance at 6% over a 30-year term has a required payment of $1,798.65 and, on its own, takes 360 months to pay off, costing $347,514.57 in total interest. Adding $200 a month — a $1,998.65 total payment — pays the loan off in 279 months (about 23.3 years), saving roughly 6.8 years, for total interest of $256,341.13. That is a saving of $91,173.43 in interest compared with the original schedule.

Lump sum vs. recurring extra payment

A recurring extra payment adds a fixed amount to every monthly payment for as long as it continues, chipping away at the balance every month going forward. A one-time lump sum — from a bonus, tax refund, or inheritance — is instead applied immediately to reduce the starting principal balance, after which all future interest is calculated on that lower balance. Both reduce total interest, but a lump sum's benefit is realized immediately while a recurring extra payment's benefit accrues gradually over the life of the loan.

The two can be combined: the lump sum lowers the starting balance an accelerated schedule then runs from, with the recurring extra amount added to every monthly payment across that schedule. Because interest compounds on a shrinking balance, the combined effect must be calculated by month-by-month simulation, not simple addition of each strategy's standalone saving.

What extra payments do not do

Extra payments do not automatically lower the required monthly payment. On most standard mortgages, extra payments and lump sums reduce the balance and shorten the payoff time, but the contractual required payment stays the same unless the lender formally recasts (re-amortizes) the loan at the new balance — a separate request some servicers charge a fee to process. Most conforming U.S. residential mortgages carry no prepayment penalty, but the CFPB recommends confirming with the servicer before making a large lump-sum payment, since a penalty on certain loan types could reduce the net benefit.

常见问题

参考文献

1. Consumer Financial Protection Bureau (CFPB) — How can extra mortgage payments save me money? https://www.consumerfinance.gov/
2. Consumer Financial Protection Bureau (CFPB) — What is mortgage recasting? https://www.consumerfinance.gov/
3. Fannie Mae. Selling Guide — mortgage payoff and recasting provisions. https://www.fanniemae.com/