See exactly how much you save — and how many years earlier you're debt-free — by paying a little extra each month.
Almost always, yes — for loans without prepayment penalties. Every extra dollar goes directly to principal, reducing future interest. The exception is if you have higher-interest debt elsewhere, in which case paying that off first saves more.
On a $250,000 mortgage at 6.5% APR over 30 years, an extra $100/month saves roughly $60,000 in interest and pays off the loan about 5 years early. The savings scale with your loan size, rate, and remaining term.
Mathematically, the timing matters less than the total extra amount. Bi-weekly payments (26 half-payments per year instead of 12 monthly) effectively make one extra full payment annually, which is a simple way to accelerate payoff without feeling the pinch.
If your mortgage rate is below 5-6%, investing the extra money in a diversified index fund has historically outperformed the mortgage savings. Above 7%, paying down the mortgage usually wins. Also factor in tax implications, the emotional value of being debt-free, and your risk tolerance.
Yes — most lenders apply extra payments to the next month's bill by default, not to principal. You typically need to check a box in your online payment portal or include a note specifying 'apply to principal' for the extra amount.
Most modern personal, auto, and mortgage loans do not have prepayment penalties, but some do. Check your loan agreement before making large extra payments. If a penalty exists, it's usually a percentage of the remaining balance and phases out after a few years.