What’s the Fastest Way to Pay Down a Mortgage Early?

What's Hot

23 Upgrades Under $50 to Make Your House Look AwesomeAround The House

Trump Worth $10 Billion Less Than If He’d Simply Invested in Index FundsBusiness

Do This or Your iPhone Bill May SkyrocketSave

11 Places in the World Where You Can Afford to Retire in StyleMore

19 Moves That Will Help You Retire Early and in StyleFamily

What You Need to Know for 2017 Obamacare EnrollmentFamily

8 Things Rich People Buy That Make Them Look DumbAround The House

50 Ways to Make a Fast $50 (or Lots More)Grow

32 of the Highest-Paid American SpeakersMake

The 35 Two-Year Colleges That Produce the Highest EarnersCollege

5 DIY Ways to Make Your Car Smell GreatCars

Amazon Prime No Longer Pledges Free 2-Day Shipping on All ItemsMore

More Caffeine Means Less Dementia for WomenFamily

7 Household Hacks That Save You CashAround The House

5 Reasons a Roth IRA Should Be Part of Your Retirement PlanGrow

30 Awesome Things to Do in RetirementCollege

Beware These 10 Retail Sales Tricks That Get You to Spend MoreMore

9 Tips to Ensure You’ll Have Enough to RetireFamily

When it comes to paying down a mortgage early, is it better to make a single large extra principal payment annually or 12 smaller ones each month?

This article originally appeared on Len Penzo dot Com.

Vanilla or chocolate? Credit or debit? House Hunters or Jersey Shore? Some questions can be answered with relative ease by almost everyone.

When it comes to paying down mortgages early, however, a much more perplexing question for most folks is whether it’s better to make a single large extra principal payment annually or twelve smaller ones each month.

Is one method better than another? Does one prepayment method save more interest and result in a quicker loan payoff date than the other?

Let’s assume we have a 30-year loan of $200,000 at an interest rate of 6 percent. After crunching the numbers (and rounding them just a bit for clarity) we get the following results:

It would take 297 months (24.75 years) to retire your loan if you make one extra payment of $1,200 annually. On the other hand, choosing to make 12 additional monthly principal payments of $100 each year would allow the loan to be paid off two months sooner, saving an additional $1,830 interest in the process.

Then again, over a 24-year period, that’s almost a wash considering the amount of interest paid overall, not to mention inflation’s insidious impact on the dollar’s purchasing power over time.


Now, I know what you’re thinking: But Len, is the impact any different for a shorter loan?

Not really.

Again, let’s assume we have the same loan amount and interest rate as in our first example; however, this time we have a 15-year mortgage. Here are the results:

As you can see, no matter which path you choose, it’s essentially the same answer once again, although the difference between the two methods is even less pronounced with the shorter loan. In this case, making 12 equal extra payments of $140.66 every month would retire the loan in 160 months (13.33 years) – that’s one month sooner than making single annual payments of $1,688.

So there you have it. When it comes to making extra mortgage principal payments, there is very little difference between the two methods, regardless of whether you have a 30-year or 15-year mortgage.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: 9 Tips to Ensure You’ll Have Enough to Retire

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,659 more deals!