Should You Pay Off Your Mortgage Early? Extra Payment Math Explained
📑 In this guide
“Should I pay off my mortgage early?” is one of the most-asked personal finance questions in America, and the honest answer is: it depends on your rate, your alternative returns, and your psychology. Here is the math that decides it.
What an extra payment actually does
Amortization front-loads interest. In year one of a 30-year, 6.5% mortgage, roughly 80% of each payment is interest. Every extra dollar you apply to principal permanently removes that dollar from the balance — and all the interest it would have generated for the remaining 20+ years.
Concrete examples ($350,000 loan, 30 years, 6.5%):
| Strategy | Payoff time | Total interest | Interest saved |
|---|---|---|---|
| Minimum payment only | 30 years | ~$446,000 | — |
| +$100/month | ~26.5 years | ~$385,000 | ~$61,000 |
| +$250/month | ~23 years | ~$325,000 | ~$121,000 |
| +$500/month | ~20.5 years | ~$268,000 | ~$178,000 |
Run your exact numbers with the free loan amortization calculator above — enter your balance, rate, term, and an extra payment to see your own payoff date and interest savings.
The opportunity-cost test
The decision is really about comparing two rates:
- Your mortgage rate — the guaranteed return from prepaying.
- Your best alternative — what your money could earn elsewhere (after tax).
At 2026 mortgage rates (30-year fixed around 6–7%), prepaying is a 6–7% guaranteed, tax-free return. That beats almost every low-risk alternative and even the long-run stock market’s inflation-adjusted ~7% — with zero volatility. At a 3% rate (rare now, common a few years ago), the same extra dollar is usually better invested.
The right order of operations
Most planners agree on this sequence before aggressively prepaying:
- Emergency fund: 3–6 months of essential expenses. Without this, a job loss forces you to borrow at credit-card rates.
- 401(k) match: employer matching is a 50–100% instant return — always take it.
- High-interest debt: credit cards (22–25% in 2026) and payday loans outrank any mortgage prepayment.
- Max out tax-advantaged space: 401(k)/IRA/HSA contributions (see the 2026 retirement limits guide) usually beat prepaying a sub-5% mortgage.
- Then prepay — or invest in a taxable account if your rate is low.
The psychological factor
Debt-free homeowners sleep better, and there’s real value in that. But “house poor” — draining liquidity to pay off a house — is the flip side. The best middle path many use: make one extra payment per year (13 payments), or round up monthly, which captures most of the savings without straining cash flow.
Educational reference. Mortgage rates are illustrative 2026 averages — your actual rate and tax situation change the math. Verify with your lender before designating extra principal payments.