Why mortgage prepayment is so powerful — and so underused
A 30-year mortgage is structured so that the early years are almost pure interest. On a $320,000 loan at 6.75%, your first monthly payment of ~$2,075 splits roughly $1,800 to interest and only $275 to principal. The bank gets rich in the opening innings. Any extra dollar you route to principal permanently eliminates every future interest charge that dollar would have generated — a small prepayment today is worth many times more than the same prepayment late in the loan.
The "one extra payment a year" trick
The most famous mortgage trick is making 13 payments a year instead of 12 (either as one lump extra payment, or by paying biweekly so you sneak in an extra half-payment twice a year). On a typical 30-year mortgage, this alone shaves about 4 years off the term and saves tens of thousands in interest. The calculator above lets you test any extra amount — if "one extra payment a year" is ~$175/month on your loan, try it.
Should I prepay the mortgage at all?
This is the big debate. The case for prepaying: it is a guaranteed, tax-free return equal to your mortgage rate. At 6.75%, that is hard to beat in bonds or savings. The case against: stock market returns have historically averaged ~10%, mortgage interest may be deductible, and liquidity matters (a prepaid mortgage is money you cannot easily get back). Most financial planners split the difference: fund retirement accounts to the employer match, keep a real emergency fund, then prepay the mortgage with whatever is left.
Recasting vs refinancing vs prepaying
Three different tools, often confused. Prepaying shortens the term while keeping the same monthly payment. Recasting (a formal lender-permitted re-amortization after a lump sum) keeps the term but lowers the monthly payment. Refinancing replaces the loan entirely — new rate, new term, closing costs. Prepaying is almost always the right default because it has zero cost and requires no paperwork.
When not to prepay
If you have any credit card debt, stop reading this and go to our credit card payoff calculator— a 22% APR destroys a 6.75% mortgage in importance. Same logic applies to auto loans above 8% and personal loans above 10%. The mortgage is usually the last debt to attack.
The write-it-on-the-check trick
When you send extra money to your mortgage, write "apply to principal" in the memo line or use the dedicated principal-only payment option in your lender's portal. Otherwise the servicer may credit it as a future payment and you will get no early payoff benefit at all. This is the single most common mistake mortgage prepayers make.
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For education only. Not financial advice.