Should I Make Extra Mortgage Payments?

Extra principal is guaranteed, tax-free return equal to your mortgage rate. Whether it is the best use of the money is a different question.

What it actually does

$400,000 at 6.5% over 30 years. Total interest if you never prepay: $510,178.

Note it does not reduce your monthly obligation. The payment stays the same; the term shortens.

The comparison that matters

Prepaying returns your mortgage rate, risk-free and tax-free. At 6.5%, matching that in a taxable investment account requires roughly 8–9% pre-tax depending on your bracket.

Historical equity returns exceed that. Future returns are unknown. That is the whole argument, and reasonable people land differently.

Where prepaying clearly loses

• No emergency fund. Home equity is illiquid. Money in the house is not available when the roof fails.
• Unmatched employer 401(k). A 50% match is an immediate 50% return. Nothing beats it.
• Higher-interest debt. Credit cards at 22% dwarf a 6.5% mortgage.
• Very low rate. If you hold a 3% mortgage, prepaying is almost certainly wrong — that debt is cheaper than inflation.

Where it clearly wins

• Approaching 80% LTV. Prepaying to eliminate PMI returns far more than the rate — you save both the interest and the insurance.
• Near retirement. Eliminating a payment before fixed income begins has value beyond arithmetic.
• You will not invest the difference. The comparison only holds if the money actually gets invested. Money not spent on the mortgage that gets spent elsewhere loses to prepaying.
• High rate environment. At 7%+, the risk-free return is genuinely competitive.

The biweekly question

Paying half your payment every two weeks produces 26 half-payments — 13 full payments a year rather than 12.

The saving is real but comes entirely from that extra payment, not from any interest-calculation magic. You can achieve the same by adding 1/12 of your payment each month, keeping control and avoiding the setup fees some third-party services charge.

How to do it correctly

1. Specify “apply to principal” — otherwise it may be held as a prepaid regular payment
2. Verify on the next statement that principal actually dropped
3. Make it a separate transaction rather than a larger single payment where possible
4. Check for a prepayment penalty — rare on conventional, more common on non-QM

The extra payment calculator shows the effect on your own numbers.

Common questions