Extra Principal Payments: How Much Interest Can You Really Save?
Making extra principal payments on a mortgage is one of the more direct ways to reduce total interest paid over the life of a loan, but understanding why it works — and how timing affects the payoff — helps set realistic expectations before committing to a strategy. Why extra principal payments save so much interest Mortgage interest is calculated on the remaining balance each period, so any amount that reduces the balance sooner reduces the interest charged on that portion for every remaining period of the loan. Because early payments in a standard amortization schedule are weighted heavily toward interest, extra principal paid earlier in the loan term tends to generate more total interest savings than the same extra amount paid later. The impact of even modest, consistent extra payments A relatively small extra amount paid consistently every month — even under a hundred dollars on a typical loan balance — can add up to meaningful interest savings and shave years off the loan ...