How much does an extra payment actually save?
More than most people expect, because the effect compounds. Extra money goes entirely to principal, since the interest due that month is already covered by your regular payment. A smaller balance then accrues less interest on every remaining payment for the rest of the loan. On a typical 25-year mortgage, an extra 200 a month often saves several years and a five-figure sum in interest. This calculator simulates the loan month by month and shows the exact figures for your numbers.
Is it better to pay extra monthly or a lump sum once a year?
Monthly wins, for the same total amount, because each payment starts reducing interest sooner. The difference is real but modest — usually a few months of extra savings over the life of the loan. The practical consideration matters more: a small monthly amount you can sustain beats an annual lump sum you might skip. Use the mode tabs to compare all three patterns with your own figures.
Should I overpay my mortgage or invest the money instead?
Overpaying gives a guaranteed, risk-free return equal to your mortgage rate, and in most countries it is untaxed. Investing may return more but carries risk and, in a taxable account, tax. A reasonable rule: if your mortgage rate is higher than what you could safely earn after tax, overpay; if it is much lower, investing likely wins over long periods. Also consider clearing higher-interest debt first, and keeping an emergency fund — money paid into a mortgage is hard to get back out.
Will my lender let me overpay without a penalty?
Most fixed mortgages permit annual penalty-free prepayments, commonly 10 to 20 percent of the original balance, with anything above triggering a charge. Variable and open mortgages are usually unrestricted. Check your prepayment privileges before committing to a plan — exceeding the limit can cost more than the interest you save.
Does an extra payment reduce my term or my monthly payment?
By default almost always the term: your payment stays the same and the loan simply finishes earlier, which is what saves the most interest. Some lenders offer to recast instead, recalculating a lower payment over the original term — that improves monthly cash flow but saves far less interest. This calculator models the first, term-shortening approach.
Do I need to tell my lender the money is for principal?
Often yes, and it matters. Some lenders hold extra funds as a credit toward your next scheduled instalment rather than applying them to the balance, which saves no interest at all. Confirm in writing that overpayments are applied to principal, and check your statement after the first one to make sure the balance moved.