TL;DR: Paying extra toward principal can save a lot of interest and speed up payoff. But if you carry higher‑interest debt or have better investment opportunities, prepaying may not be the best first dollar.
Why prepay?
- Reduce total interest paid across the life of the loan
- Pay off years sooner (financial flexibility + less risk)
- Guaranteed “return” roughly equal to your mortgage rate (after‑tax)
When prepaying may not be optimal
- You have higher‑interest debt (credit cards, personal loans)
- Your emergency fund is thin (< 3–6 months expenses)
- You can plausibly earn more after‑tax in diversified investments over your horizon
How much does it really save? Model it.
Small, consistent extra payments compound. For example, $200/month extra on a $400k, 6.5% loan can trim years off and save tens of thousands in interest. The exact impact depends on remaining term, rate, and when you start.
Use Housalyzer’s Prepayment Simulator to see:
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New payoff date vs. baseline
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Total interest saved
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Month‑by‑month amortization
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Flexible schedules (monthly, annual, one‑time lump sums)
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Start Prepayment → Open the Prepayment Simulator
Smart prepayment strategies
- Automate a fixed monthly extra payment (even $50–$200 helps)
- Add a small annual lump sum (bonus, tax refund) to principal
- Time extra payments early in the loan for outsized impact
- Keep flexibility: you can always pause extras if cash gets tight
Common questions
Does prepayment hurt my taxes? Mortgage interest deductions matter only if you itemize and exceed the standard deduction. Don’t prepay just for the deduction—run the after‑tax math.
What about refinancing instead? If rates have dropped meaningfully, compare a refi to prepaying extra. Sometimes a no‑refi + extra payments wins on cost and flexibility.
The takeaway
Prepaying turns into a low‑risk, bond‑like return equal to your mortgage rate after taxes—and more peace of mind. Just make sure it ranks ahead of other uses for cash when you consider risk, liquidity, and expected return.
Disclaimer: This is not financial advice. Always consult a qualified professional before making mortgage or investment decisions.