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Buying a home is a huge milestone. You are done with rent, you have your place to personalize however you want, and best of all, you have a consistent monthly payment that stays the same if you have a fixed-rate mortgage. At closing, you probably saw your full loan breakdown, including monthly payments, total interest, and how many years it would take to pay it off. Everything feels clear and predictable. But have you ever wondered what would happen if you make just one extra mortgage payment a year?
Making One Extra Mortgage Payment a Year
We want to make it clear that there’s no requirement to make extra payments on your mortgage. Most homeowners stick to their regular monthly payments, which is perfectly okay. While making extra payments can help you pay off your loan faster and reduce interest, it’s entirely optional and not necessary to enjoy the long-term benefits of homeownership.
But if you’re in a position where you have a little extra room in your budget, maybe from a tax refund, a bonus at work, or just some smart saving, making one extra mortgage payment a year can create some serious long-term advantages. Depending on your loan amount and interest rate, that extra payment might range anywhere from a few hundred dollars to several thousand. While it’s not always easy or realistic to do, the impact on your mortgage can be powerful.
Pay Less in Interest
Your mortgage is structured so that, especially in the early stages of your mortgage, a large portion of your monthly payment goes toward interest rather than the actual loan balance. That’s why making an extra payment toward your principal can be a smart move. The principal is the amount you borrowed, and when you pay it down, you reduce the balance on which future interest is calculated. Paying interest is just the cost of borrowing money and paying principal minimizes your debt and saves you money in the long run.
Shorten the Life of Your Loan
Even if you only make one extra payment each year, you can shave several years off your mortgage and save a significant amount in interest. For example, let’s say you have a 30-year fixed mortgage for $500,000 at a 6% interest rate. Your monthly principal and interest payment would be around $2,998. If you make just one extra $2,998 payment per year and apply it directly to your principal, you could pay off your mortgage about 4 to 5 years early and save over $85,000 in interest. That’s a huge return for one extra payment a year!
Build Equity Faster
Every time you make a mortgage payment, you’re not just covering your loan, you’re also slowly increasing your ownership stake in your home. That ownership is called equity. Making extra payments helps grow your home’s equity more quickly because you’re chipping away at the principal. This can be especially helpful if you envision selling or refinancing at some point. More equity gives you more flexibility and potentially better financial options down the line.
What If You Made More Than One Extra Payment?
If your budget allows you to make more than one extra mortgage payment a year, the impact can put you in a better financial position. But what about two extra payments a year? Or three? Even better. You could cut your loan term down by almost a decade, depending on your balance and interest rate. You would also save even more on interest, and your equity would grow at an even faster pace.
Some people like to break it down into smaller chunks instead of making one large lump sum. For example, instead of 12 payments a year, they divide their monthly mortgage in half and pay every two weeks. That equals 13 full payments in a year, which adds up to the same kind of benefit without feeling like a big financial hit all at once.
Check With Your Lender First
Before you send in an extra payment, it is always smart to check with your mortgage lender or servicer. Ask them how extra payments are applied and if there are any restrictions or guidelines you should follow. There may be a pre-payment penalty fee or an early payoff restriction on your loan that should be reviewed before choosing to make an extra payment or not. These penalties may be based on the length of time (for example, within the first 3 years of the mortgage) or based on the additional amount being applied to the loan (may limit certain % to be paid off early). Some lenders may apply extra funds to the next scheduled payment instead of the principal unless you specifically request otherwise.
You will also want to clarify the best way to make that extra payment. Should it be included with a regular monthly payment or sent separately? Does it need to be labeled in a specific way so it is applied correctly? Your lender can guide you through this and help make sure your efforts are working to your benefit.
It May Be Worth the Extra Push
Making one extra mortgage payment a year might feel small, but it can seriously add up. You’ll reduce the interest you pay, grow your equity faster, and potentially knock years off your loan. It’s not required, and it won’t work for every budget, but if you can swing it, it’s a smart way to get ahead on your financial goals—one payment at a time.
Curious why your payment might fluctuate even if you don’t make extra payments? Check out our blog on why mortgage payments can change to make sure you stay on top of your finances.
