Why extra payments work so disproportionately
On an amortized loan, early payments are mostly interest and late payments are mostly principal. An extra payment skips straight to the principal, which means it removes not just that dollar but every future interest charge that dollar would have generated. That is why an extra $200 a month on a $300,000 mortgage at 6.5% saves far more than the $72,000 you actually hand over — the saving compounds against the interest that never accrues.
It also explains why timing matters so much. A lump sum paid in the first year has the entire remaining term to stop earning interest for the lender. The same amount paid in year ten has far less time to work, which the box above quantifies for whatever numbers you have entered.
The part people get wrong with their servicer
Extra money does not automatically reduce the principal. Some servicers treat an unallocated overpayment as an advance on next month's bill, which changes nothing about the loan's length or its total interest. If your payment is not explicitly marked principal-only, you may be paying ahead rather than paying down. This is worth confirming in writing before relying on any of the numbers above.
Also worth checking: whether your loan carries a prepayment penalty. They are uncommon on modern mortgages but appear on some auto loans and personal loans, and a penalty can wipe out a meaningful share of the saving.
Frequently asked questions
Does paying extra reduce the monthly payment?
No. The required payment stays the same — extra money goes against the principal, so the loan ends earlier instead. Some lenders offer recasting, which does lower the payment after a lump sum, but it is a separate request and often carries a fee.
Extra every month, or save up for a lump sum?
Paying as early as possible saves the most, because every dollar of principal removed stops accruing interest from that moment. A lump sum in year one saves considerably more than the same amount in year ten.
Should I be paying the loan down at all?
That depends on the rate. Money that would clear a 22% credit card is almost always better spent there than on a 6% mortgage, and if your employer matches retirement contributions you are turning down a guaranteed return by skipping it. This calculator tells you what prepaying achieves, not whether it is your best use of the money.