Extra Payment Strategies That Save Thousands

Not all extra payment strategies are created equal. The timing, frequency, and amount of your additional payments significantly impact your total savings.

Strategy 1: The Early Years Matter Most

A $1,000 extra payment in year one of your mortgage has dramatically more impact than the same payment in year twenty. On a $300,000 loan at 6.5%, a $1,000 principal payment in month one saves approximately $4,200 in interest over the life of the loan.

Strategy 2: Round Up to the Nearest Hundred

If your payment is $1,847, pay $1,900. That's only $53 extra per month, but it adds up to $636 per year. Over 30 years, that saves approximately $22,000 in interest and shortens your loan by about 2.5 years.

Strategy 3: Tax Refund Application

The average American tax refund exceeds $2,800. Apply it directly to your mortgage principal every year. A $2,800 annual principal payment eliminates about 7 years from a 30-year mortgage and saves roughly $90,000 in interest.

Strategy 4: Bonus and Raise Capture

When you receive a work bonus, apply it to your mortgage before it hits your checking account. When you get a raise, increase your mortgage payment by the after-tax amount.

Strategy 5: Expense Elimination Redirection

Cancel unused subscriptions and redirect those funds to your mortgage. A $200/month redirection saves about $67,000 in interest over the life of a $300,000 loan.

Common Mistakes to Avoid

Not Specifying Principal Only

When making extra payments, clearly mark them as "principal only." Some servicers otherwise apply extra money to future payments, which doesn't reduce your interest.

Ignoring Higher Interest Debt

If you have credit card debt at 18% interest, pay that off before making extra mortgage payments.