How One Extra Payment a Year Cuts Years Off Your Loan
Extra principal payments are the quiet superpower of amortized loans. Because interest is charged on the remaining balance, every dollar you remove early stops generating interest for every remaining month of the term.
- One extra payment per year on a 30-year mortgage typically shortens it by 4–6 years.
- The savings come from removing principal early — the earlier in the loan, the bigger the effect.
- Always instruct the lender to apply extra amounts to principal, not as an early next payment.
Why timing beats size
Amortization front-loads interest: in year one of a 30-year mortgage at 7%, over 80% of each payment is interest. The balance barely moves early on, which is exactly why early extra payments punch so far above their weight.
An extra $100 in year one removes principal that would otherwise accrue interest for 29 more years. The same $100 in year 25 saves only a fraction as much. Size matters, but timing multiplies it.
The biweekly trick
Paying half your monthly payment every two weeks produces 26 half-payments a year — the equivalent of 13 full payments. That one extra payment, spread invisibly across the year, can cut a 30-year mortgage to roughly 24–26 years.
Beware paid biweekly programs from lenders, which often charge setup and transaction fees. You can replicate the same schedule free by simply adding one-twelfth of a payment to each monthly payment and marking it 'apply to principal.'
The honest caveat: opportunity cost
Extra payments are a guaranteed, tax-free return equal to your loan rate — 7% pre-tax, risk-free, which is hard to beat. But if your loan rate is low (say 3%), investing the same money at a historically average 7–8% may win over long horizons.
The right answer depends on your rate, your tax situation and your tolerance for market swings. Guaranteed 7% and expected 7% are not the same thing.
Model it before you commit
Use our loan payment calculator to test different terms and see the interest column move, then read our breakdown of how amortization front-loads interest for the mechanics behind it.
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Frequently asked questions
How much does one extra mortgage payment a year save?
On a 30-year loan it typically removes 4–6 years and tens of thousands in interest, depending on rate and how early you start.
Should I pay extra or invest instead?
Paying extra is a guaranteed return equal to your interest rate. If your rate is low, long-run investing may beat it — but with market risk. Many people split the difference.