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SAME RATE, SMALLER BALANCE
What an extra principal payment is worth.
The rate on the note does not fall. The balance it is multiplied by falls. On a long loan that is a large number of dollars, and it is boring arithmetic rather than a product.
Take a $400,000 loan at 6.5% for 30 years. The scheduled principal-and-interest payment is about $2,528 a month. Over 360 months the interest is roughly $510,000. None of that requires a lender’s “savings program.” It is the payment formula.
| Extra each month | What changes |
|---|---|
| $0 | 30 years, interest near $510,000 |
| $200 | Several years come off, and tens of thousands of interest never accrue |
| $500 | The loan ends much sooner because each payment retires more principal while the rate is unchanged |
Run your own price, rate, tax, and insurance in the payoff calculator. The table above is only the shape of the result. Property tax and insurance are in the housing payment you feel, and they do not shorten the loan. Only principal does.
Paying extra is a bad trade if the same cash would retire higher-interest debt, or if the mortgage rate is far below what you can earn after tax on a safe balance you actually need. The calculator does not know your other debts. It only prices the mortgage.
Questions
Does extra principal reduce next month’s required payment?
On a standard fixed US mortgage, no. The required payment stays the same. The loan just ends sooner.
Should I pay extra or invest?
This page does not answer that. It shows the interest the mortgage will not charge if you pay principal down.
Only principal shortens the loan
Tax and insurance are housing costs. They are not extra principal, even when they sit in the same escrow payment. Raising the escrow payment does not cut interest. The line that cuts interest is the one applied to principal. On a fixed US mortgage the required payment stays the same after you pay extra. The loan ends sooner. The next bill does not shrink unless you recast, which is a separate agreement and often a fee.
Paying extra is a poor trade if the same cash would retire higher-interest debt. This page prices the mortgage only. It does not know your other balances. Run the loan in the calculator with your rate, not with the 6.5% example.
$200 and $500 on the 6.5% example
The $400,000, 6.5%, 30-year loan in the companion calculator has a payment near $2,528 and interest near $510,000 if you pay it on schedule. A few hundred dollars of extra principal each month removes years because every later payment is computed on a smaller balance. The required payment stays $2,528. You do not “lower the mortgage” in the sense of a smaller bill next month unless the servicer recasts the loan. Recasting is optional, often costs a fee, and is not what this page assumes.
Type your own balance and rate in the payoff calculator. The shape of the result is the same. The dollars are not.