Making One Extra Mortgage Payment Each Year
What happens when you pay an extra month toward your mortgage
One extra house payment per year reduces the total interest you pay over the life of your loan and shortens how long you owe money. The payment goes directly to principal—the amount you actually borrowed—rather than spreading across principal and interest the way a regular monthly payment does. On a 30-year mortgage, making one extra payment yearly can cut 4 to 5 years off your loan and save tens of thousands in interest, depending on your loan amount and rate.
The math works because each extra payment chips away at principal when your loan balance is still large. Early in a mortgage, most of your regular payment goes to interest anyway, so an extra principal payment has real impact. You do not need to refinance, change your loan terms, or sign new paperwork—you simply send the money to your lender with a note that it should go to principal.
The catch is that this only works if you can actually afford the extra payment without cutting into emergency savings or going into debt elsewhere. If you are already stretched thin, the benefit of paying off your mortgage faster is smaller than the risk of missing a regular payment or running up credit card debt.
Key Takeaways
- One extra payment per year reduces total interest paid and can shorten a 30-year mortgage by 4 to 5 years, though the exact savings depend on your loan amount and interest rate.
- The extra payment must be marked to go toward principal, not held as a credit toward next month's payment, so contact your lender first to confirm how to send it.
- This strategy only makes financial sense if you have stable income and an emergency fund, because missing a regular payment costs far more than the interest you save.
- Paying extra does not lower your monthly payment amount, so your regular bill stays the same unless you refinance or modify your loan.
- Some lenders charge fees for extra payments or restrict when you can make them, so read your loan documents or call before sending money.
How to send an extra payment without creating confusion
Call your lender's customer service line and ask exactly how they want you to send an extra payment. Some lenders have a specific mailing address or online portal for principal-only payments. Others require you to include a written note with the check stating that the money should go to principal, not be held as a credit. This step matters because if your lender misapplies the payment, it sits as a credit on your account and does not reduce principal at all.
When you make the payment, keep a record of the confirmation number, date sent, and amount. Your next mortgage statement should show the principal balance decreased by that amount. If it does not, contact your lender immediately and ask them to correct it. Do not assume the payment was applied correctly just because it cleared your bank account.
Some lenders allow you to set up automatic extra payments, usually in the form of biweekly payments that add up to one extra payment per year. If your lender offers this, it removes the guesswork—the system handles it for you. Ask whether there is a fee to set this up or whether it changes if you sell the house or refinance.
When an extra payment does not actually save you money
If your mortgage interest rate is very low—below 3 percent—the interest you save by paying extra may be smaller than what you could earn by investing that money elsewhere. A financial advisor can help you compare the may provide return of paying down your mortgage against the potential return of investing in a retirement account or index fund. This is a personal choice based on your comfort with risk and your other financial goals.
If you have high-interest debt—credit cards, personal loans, or car loans—paying down those first usually makes more sense than paying extra on your mortgage. Credit card interest rates often run 15 to 25 percent, while mortgage rates are typically 3 to 8 percent. Paying off the credit card saves you more money per dollar spent.
Some mortgages include a prepayment penalty, which means the lender charges you a fee if you pay off the loan early or pay significantly more than required. This is rare in modern mortgages but common in some adjustable-rate loans or loans sold to investors. Check your loan documents for the words "prepayment penalty" or call your lender and ask directly.
The difference between one extra payment and biweekly payments
Paying one lump sum once per year is simpler than setting up biweekly payments, but both reach the same result: one extra payment's worth of principal reduction annually. With biweekly payments, you send half a regular payment every two weeks instead of one full payment per month. Since there are 26 biweekly periods in a year, you end up sending 13 half-payments, which equals one full extra payment.
Biweekly payments work well if you are paid biweekly and want the payment to sync with your paycheck. They also remove the temptation to skip the extra payment in a month when money is tight. The downside is that biweekly payments are harder to pause if your circumstances change—you have to contact your lender to stop them, whereas a one-time annual payment is easier to skip if needed.
Some lenders charge a setup fee for biweekly payment plans, sometimes $200 to $500. Ask about this before you enroll. You can also achieve the same result by simply dividing your monthly payment by 12 and adding that amount to each regular payment—no setup fee required, and you keep full control.
What to do if you cannot afford an extra payment right now
If your budget does not have room for an extra payment, do not create one by cutting essentials or going into debt. The benefit of paying off your mortgage faster is not worth the stress of living paycheck to paycheck or carrying credit card balances. Focus instead on building an emergency fund that covers three to six months of expenses, then revisit the extra payment idea once that fund is in place.
If you receive a bonus, tax refund, or inheritance, putting that money toward an extra mortgage payment is a reasonable use of unexpected income—it is not the same as stretching your regular budget. Many people make one extra payment per year by setting aside a portion of their tax refund or annual bonus, rather than trying to find room in their monthly budget.
You can also make a smaller extra payment—half a payment, or a few hundred dollars—rather than a full payment. The math still works in your favor, just more slowly. Any amount above your regular payment that goes to principal reduces interest and shortens your loan.
How the extra payment affects your loan timeline and interest
The exact savings depend on three things: your loan amount, your interest rate, and how early in the loan you start making extra payments. On a $300,000 mortgage at 6 percent interest over 30 years, one extra payment per year saves roughly $64,000 in interest and pays off the loan in about 25 years instead of 30. On a $200,000 mortgage at 4 percent, the savings are smaller—roughly $30,000—but the loan still shortens by about 4 years.
The earlier you start, the bigger the impact. An extra payment in year 1 saves more interest than an extra payment in year 15, because the principal balance is larger early on. If you start making extra payments partway through your loan, you still benefit, but the total savings are smaller.
Your lender's website or customer service can run a payoff calculation for you if you give them your loan number and tell them you plan to make one extra payment per year. This shows you the exact timeline and interest savings for your specific loan, which is more accurate than a general example.
Frequently Asked Questions
Does making one extra payment per year lower my monthly mortgage bill?
No. Your monthly payment amount stays the same unless you refinance or formally modify your loan. The extra payment reduces the total amount of interest you pay over time and shortens how long you owe money, but it does not change the payment due each month. If lowering your monthly payment is your goal, refinancing is a separate decision with its own costs and benefits.
What if I miss a month and cannot make the extra payment?
Nothing happens. The extra payment is optional—it is not part of your loan agreement. Missing it does not hurt your credit or trigger a late fee. Your regular monthly payment is what matters for your credit score and your loan status. If money is tight, skip the extra payment and focus on making your regular payment on time.
Can I make multiple extra payments in one year instead of spreading them out?
Yes. You can send two extra payments in January if you want, or make one large payment whenever you have the money. The result is the same—the principal goes down and interest savings accumulate. Just make sure each payment is marked to go toward principal, and keep records of what you sent and when.
What happens to my extra payment if I sell the house or refinance?
When you sell, the extra principal you paid off reduces what you owe at closing, so you walk away with more money. If you refinance, the lower principal balance means you borrow less on the new loan, which can lower your new monthly payment or shorten the new loan term. Either way, the extra payment you made is not lost—it stays as a reduction in what you owe.
Is paying extra on my mortgage better than investing the money?
It depends on your interest rate, your investment options, and your comfort with risk. A may provide return (paying off a 5 percent mortgage) is often more valuable than a potential return (investing in the stock market). But if your mortgage rate is below 3 percent and you have decades until retirement, investing might grow your wealth faster. A financial advisor can help you weigh the two options based on your specific situation.