How Extra Payments Save Interest

When a servicer applies an extra payment to mortgage principal, it reduces the balance used for later interest calculations. The effect depends on the loan terms, payment timing, and servicer rules.

The Compounding Effect

Interest is commonly calculated periodically from the current principal balance. If an extra $100 is applied to principal today, the modeled balance next period is $100 lower. The resulting modeled interest charge may be lower; actual posting, interest conventions, and prepayment terms can differ.

Common Strategies

• Bi-weekly payments: Under a 26-payment-per-year arrangement, half-payments total 13 monthly-payment equivalents. Confirm how a particular lender or servicer holds and applies those payments.
• Monthly addition: Adding a fixed amount, like $100, to every monthly payment.
• Lump sums: Applying bonuses or tax refunds directly to the principal.

You can model the impact of these strategies using our Payoff Calculator.