Making extra mortgage payments: How much will you save?

Save thousands in interest and pay off your mortgage years in advance.

Have you thought about making extra mortgage payments, but don’t know if it is worth it? It is true that you can save thousands of dollars in interest and pay off the mortgage years in advance if you make extra payments monthly, bimonthly, quarterly or annually. Making the long term commitment to do so is easier when you know exactly how much you stand to benefit.

Over the course of a loan term you will spend thousands, and maybe even hundreds of thousands of dollars in interest. Payments on a mortgage are calculated using an amortization schedule, a technical term for the schedule of payments you make over a loan period. If you look at the last page of the Closing Disclosure your lender provided, you can see the “Finance Charge” you will pay over the course of the loan. Borrowers are often shocked to find that this amount is nearly the same amount they are borrowing, but interest is the price you pay to use the lender’s money..

To lessen the blow to your finances over the long term, consider making extra payments. One strategy used by homeowners is to divide one payment amount by twelve and then add that amount to each monthly payment. For example, if your payment is $1,200 per month, then you would add $100 to the check you send your mortgage servicer. If you don’t have room in your monthly budget for the additional money, you can achieve the same result by making one extra payment per year. Two options to come up with the money annually is to use your tax refund or bonus from work. Caution: your mortgage servicer will have specific rules about how the extra payment is made, so be sure to follow that procedure to avoid confusion. You can read more about that here.

How much can you benefit from doing this? Let’s use an example to illustrate the benefits of making extra payments in terms of savings and years. Then you can use your own mortgage information to determine potential savings.

$200,000 loan + 4% interest rate + 30-year term = $955 monthly payment

Using any of the dozens of extra-payment calculators you can find on the web including this one from, plug in these figures and add an extra annual payment of $955 (or about $80 per month) and see how the length of term decreases from 360 payments (30 years) and the amount in interest-paid decreases. Using this example, the term of the mortgage is shortened by four years and eleven months and the total savings is $22,366!

Now imagine yourself in 25 years. Will you be retired or nearing it? Consider what it would mean for your financial security and quality of life for the next five years if you could use that money every month for anything other than a house payment. If it feels like a situation you want to be in, then step one is finding room in your monthly budget. Step two is contacting your lender to set up a plan that ensures your money is applied correctly to your principle balance.

Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, go to either or Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health.

Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at

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