How much can I save by making one extra mortgage payment per year?

On a $350,000, 30-year mortgage at 6.5%, making one extra monthly payment per year (splitting it into 12 additional amounts added to each monthly payment) saves approximately $78,000 in interest and pays off the loan about 4.5 years early. The impact is larger with higher interest rates and earlier in the loan term. Use the Extra Payment Calculator to model your scenario.

Is it better to make extra payments or refinance to a shorter term?

Extra payments offer more flexibility since you can stop anytime without penalty. Refinancing locks you into higher required payments but may offer a lower interest rate. If your current rate is above market rates, refinancing may save more. If your rate is already competitive, extra payments achieve a similar result without closing costs. Run both scenarios through the Refinance Calculator.

Should I pay off my mortgage early if I have other investments?

Compare your mortgage interest rate to your expected investment returns after taxes. If your mortgage is at 3-4%, investing in a diversified portfolio averaging 7-10% will likely build more wealth. Above 6-7%, the guaranteed return from eliminating mortgage interest becomes very competitive. Also consider: tax deductibility of mortgage interest, your risk tolerance, and the psychological value of being debt-free.

Do all lenders allow extra mortgage payments without penalties?

Most conventional, FHA, and VA loans have no prepayment penalties. However, some loans (especially older ones or certain adjustable-rate mortgages) may include prepayment penalty clauses that charge 1-3% of the remaining balance if paid off within the first 3-5 years. Check your loan documents or call your servicer before starting extra payments.

Where should extra mortgage payments be applied: principal or escrow?

Always specify that extra payments go toward principal reduction. If you simply send extra money without instructions, servicers may apply it to the next month's payment (which includes interest) or to escrow. Most servicers have a specific field or process for principal-only payments. Verify your first few extra payments were applied correctly by checking your statement.

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Finance March 22, 2026 8 min read

✓ Reviewed by Derek Giordano, BA Business Marketing

Should You Pay Off Your Mortgage Early? The Math Might Surprise You

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By Derek Giordano, BA Business Marketing · April 2026 · Reviewed for accuracy

When paying extra on your mortgage makes sense — and when investing that money beats it. With a calculator showing the real break-even for your rate.

One of the most common personal finance debates: should you make extra mortgage payments to pay off your home early, or invest that money instead? The answer depends on one number: your mortgage interest rate.

The Simple Rule

Compare your mortgage interest rate to your expected long-term investment return:

Mortgage rate > expected return → Pay off mortgage early (guaranteed return beats uncertain market)
Mortgage rate < expected return → Invest (market returns beat paying down cheap debt)
They're close → Hybrid: do both, or consider your risk tolerance and psychology

The Numbers in Practice

At a 7% mortgage rate, your extra payments generate a guaranteed 7% return (after-tax if not deducting interest). The S&P 500 has returned roughly 10% annually over the past century — but with significant volatility, years of negative returns, and no guarantees.

At 7%, paying down the mortgage is surprisingly competitive with investing, especially on an after-tax basis when considering the state and local tax deduction limitations from TCJA.

The Case for Paying Extra

Guaranteed return: Every dollar of extra principal earns exactly your interest rate — risk-free
Psychological value: Many people dramatically underestimate the freedom of an owned home
Reduced sequence-of-returns risk: Going into retirement with no mortgage dramatically reduces the amount you need invested
Forced savings: Extra payments build equity automatically vs the discipline required to invest voluntarily

The Case for Investing Instead

Historical returns: Stocks have beaten 4–6% mortgages reliably over long periods
Tax-advantaged space: Max your 401k and IRA first — these compound tax-free, which often tips the math toward investing
Liquidity: Extra mortgage payments are illiquid (you need to sell or refinance to access equity). Investments can be liquidated in days
Inflation hedge: A fixed mortgage payment becomes cheaper in real terms as inflation rises. Your mortgage from 2021 at 3% is extremely cheap relative to current rates

The Hybrid Strategy Most People Should Use

The optimal order for most people:

Emergency fund (3–6 months expenses in HYSA)
401k up to employer match (100% instant return)
Roth or Traditional IRA (max $7,000/year)
Max 401k ($23,000/year)
Extra mortgage payments or taxable investing (based on rate comparison)

Never pay extra on a mortgage instead of getting your 401k employer match. That match is a 50–100% instant return — nothing beats it.

How to Calculate Your Break-Even

Use our Extra Mortgage Payment Calculator to see exactly how much time and interest you'd save with various extra payment amounts. Then compare that certainty against expected investment returns at your risk tolerance.