An extra $200 a month sounds like it should shave a couple years off your loan. It usually does more than that, but only if it actually goes where you think it does.
Every payment splits into interest and principal
Each payment splits in two. One part is interest on what you owe now. The other part cuts what you owe. Early on, interest takes most of it, because you still owe a lot. As the balance falls, more goes to the loan. That shift has a name: amortization.
Why an extra dollar today is worth more than one later
Because interest is calculated on your outstanding balance every month, reducing that balance earlier means every future month accrues interest on a smaller number. An extra $5,000 paid in year 2 of a 30-year loan eliminates roughly 28 years of interest on that $5,000; the same $5,000 paid in year 25 only eliminates about 5 years of interest on it. Timing matters as much as amount.
Paying more does two things at once. It cuts the years left on your loan. And on a conventional loan with PMI, it pulls in the date you can request cancellation. That date runs off what you really owe, not off your first plan.
The mistake that erases the benefit
Sending extra money without designating it doesn't guarantee it reduces principalThe amount you still owe, not counting interest.Click to open the full glossary.. Some servicers apply an unlabeled extra amount to your next month's payment instead, which pays you ahead in time but does nothing to your amortization schedule or your PMI timeline. Always explicitly mark extra payments as "additional principal". Use their web site, a memo line on the check, or a phone call. Then check your next bill. Make sure the balance fell by the full amount.
"An extra $5,000 in year 2 saves roughly 28 years of interest on it. The same $5,000 in year 25 only saves about 5."
Recurring vs. one-time extras
- Recurring extra payments (e.g., an extra $150 every month) compound the effect month over month, and are the most reliable way to meaningfully shorten a 30-year loan.
- One-time lump sums still help. Think a bonus or a tax refund. Put them in as early as you can. The clock on your saving starts the moment the balance drops.
Our free extra payment calculator runs this on your own balance. Type in what you would pay extra. It then rebuilds the whole plan, and shows the cash saved and the years cut. Is PMI part of why you are here? Add what the home was worth and it prices the earlier 80% date too. Or use the PMI drop-date calculator.
Tracking exactly how much interest and time each extra payment actually saves takes a full amortizationThe schedule that splits each payment between principal and interest.Click to open the full glossary. model, not a rule of thumb. CasaCrow recalculates your real schedule every time you log a payment.
See exactly what an extra payment saves you
Run it on your own balance in seconds. No sign up. Then we work out your interest, your payoff date, and your PMI dates each time you log a payment.
Try the free calculator