Even if the mortgage on your home has a relatively low interest rate, making two extra mortgage payments a year can save you a lot of money. When it comes to mortgages, the principal is so high and the loan term so long that you can save thousands of dollars in interest over the lifetime of your loan when you make extra mortgage payments.
For this article, we consulted with five different Clever Real Estate team members who have firsthand experience paying off their mortgage early (or opting not to). Although they have great advice, always seek input from a financial advisor before you decide which strategy is best for your individual financial situation.
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Here’s what happens when you pay 2 extra mortgage payments a year
There are lots of ways to prepay a mortgage — lump sum injections, biweekly payments, and refinancing, to name a few. For simplicity’s sake, this example spreads the addition of 2 extra mortgage payments per year onto 12 standard monthly payments.
Let’s say you purchase a home for $431,000—the median home price in the U.S. in 2024— and put 20% down. That translates to a mortgage principal of $344,800, which in this example will be paid off over a 30-year term at a 6.32% interest rate. If you make monthly mortgage payments of $2,139, after 30 years you’ll have paid down the $344,800 principal as well as paid an additional $425,240 in interest. That’s almost the equivalent of paying for two homes and getting one.
How much does 2 extra mortgage payments per year save?
Using that same scenario, two extra mortgage payments per year will save you over nine years of payments and $151,032 in interest. This is equivalent to paying an extra $357 each month for a total monthly payment of $2,496. This relatively small difference is enough to pay off your full debt in just under 21 years and cost you $274,208 in interest instead of $425,240.
Of course, you don’t have to put in exactly this amount every year to save money. No matter how much extra you pay toward your principle, it’ll make a big difference in the long run. The following chart shows how much you would save on this particular mortgage by adding different amounts to each of your monthly payments:
| Extra monthly payment | Years to pay off mortgage | Total interest saved over lifetime of mortgage |
| $0.00 | 30 years | $0.00 |
| $10.00 | 29 years, 7 months | $7,145 |
| $25.00 | 29 years | $16,968 |
| $100.00 | 26 years, 6 months | $59,489 |
| $357.00 | 20 years, 8 months | $151,032 |
| $500.00 | 18 years, 5 months | $184,378 |
Pros and cons of paying extra mortgage payments
✅ Pros
- You can save a substantial amount on the interest over time.
- The total length of your mortgage term will be reduced.
- You’ll have more financial freedom by paying off your mortgage sooner.
- You’ll likely save hundred of thousands of dollars in interest.
- You’ll build equity more quickly, which can be useful if you want to refinance or sell.
❌ Cons
- If you have a low-interest mortgage, other investments may actually make you more money than you’d save.
- You may have to cut expenses elsewhere to afford the extra payments.
- Spending too much on mortgage payments may leave you without emergency funds.
- If you move before your mortgage is paid off, you won’t realize the full benefit of making extra payments.
✅ Pros
Save on interest
Perhaps the biggest advantage of making extra mortgage payments is that you can save a lot of money over time. This is especially true today with interest rates above 6% as of October 2024. [1]
As you can see in the example above, it doesn’t take a lot to save extra money on your mortgage. Adding just $25 to your monthly payments will save you almost $17,000 over 30 years. And the more you add, the more you save.
Trent Seigfried, data analyst at Clever Real Estate, worked together with his wife to pay off a 30-year mortgage in 4 years. He says that when he paid extra on his mortgage, he looked at the interest savings as a form of investment. “We chose our mortgage because, at the time, rates were at about 7% and it didn't appear as though they would be dropping any time soon. We felt that paying extra on our mortgage was akin to getting a guaranteed 7% return on our money.”
Reduce your loan term
Increasing your mortgage payments also reduces the total amount of time it will take you to pay off your loan. Making the equivalent of two extra mortgage payments per year, for example, will knock off 9 years and 4 months from the total term of your loan.
A shorter mortgage term also means that you’ll own your house outright sooner. That can give you peace of mind knowing that even if you encounter financial difficulties in the future, you won’t be in danger of losing your house as long as you pay property taxes.
Increased financial freedom
Owning your house faster also frees up money that would have otherwise gone to mortgage payments. Instead, you’ll have the financial freedom to focus on other projects, simply build up your savings, or to not have to worry about financial pressures when making major life decisions.
For example, Josiah Wilmoth, business intelligence team lead at Clever Real Estate, paid off his mortgage early and says, “I think there’s several huge non-financial benefits. We don’t have to worry about affording a mortgage if our income situation changes, so it greatly expands the range of jobs and incomes that are a viable option when you don’t have a huge house payment every month. And if something happens to me, I know that between the house being paid off and my life insurance, my wife and five kids are going to be okay and she isn’t going to be forced into financial, life, or career decisions that she doesn’t want to make.”
❌ Cons
Other investments may make more sense
Paying off your mortgage can make a lot of sense if you’re stuck with one that has a high interest rate. However, if you were able to lock in a fixed-rate mortgage when rates were lower, you may be better off investing that money in something that gets you a better return. This is especially true if your lender charges a prepayment penalty for paying off your mortgage early.
For example, the S&P 500 historically has an average annual return of about 10%. [2] As Stephanie Lewis, product manager at Clever Real Estate, says, “I bought in 2020 and have a 2.8% interest rate, so I will never be making an extra payment. My money is better spent investing in the S&P 500!” Of course, when investing in stocks, it’s important to remember that some years will perform lower than average and your returns may even turn negative. It’s always best to consult a financial professional.
Even investing in other ways could make more sense than making extra mortgage payments. Drake Shadwell, Clever Real Estate’s Agent Network Manager, says, “Although I missed the lowest rates, I still locked in 6.25% (after paying points). A high-yield savings account at 4% already covers a good portion of that interest, and investments like the S&P 500, lending to flippers, tax certificates, bonds, and CDs helped close the gap even further—all while keeping the funds accessible in case of an emergency.”
You may have to cut back on spending
The more money you put toward your mortgage, the more interest you’ll save and the faster you’ll own your home. However, paying more on your mortgage each month means you may have to cut back on other expenses, at least for the duration of your loan term.
As Trent Seigfried says, “For the first four years, we aimed to make a double payment every month, and we did that. We even made a triple payment some months. We did this mostly by staying at home and having inexpensive hobbies, which was easy with two (then three) young ones at home.”
While Trent was able to absorb the extra expense, you may find your current income makes extra mortgage payments difficult. Even if you can afford them, having to cut back on other expenses may negatively impact your lifestyle in a way that is not worthwhile for you.
Not enough money for emergencies
Similarly, putting too much of your money toward your mortgage could leave you without easy access to funds in case of an emergency. If you don’t have an emergency fund built up, you should focus on that first. While it’s true you’ll have more equity in your house, tapping into it is not the easiest choice since it will involve either refinancing or selling, and both of those things come with additional costs.
You can still make extra payments on your mortgage, but you should structure them in such a way that you always have an emergency fund that’s easily accessible.
For example, Kristyn Grewell, Clever Real Estate territory manager and a former real estate agent, says, “One of my favorite title agents used to share some good advice with first-time buyers at closing. She would suggest that whatever money you wanted to pay above the payment be placed into a dedicated savings account all year. Then, in December, make one extra payment with those funds labeled as principal. That way there is only one transaction to keep after to ensure it was applied correctly and in case of emergency during the year, the funds would be available.”
Alternatives to 2 extra mortgage payments a year
Target investments with high returns
As mentioned already, a better way to spend money that would otherwise go toward extra mortgage payments is through investing. Many investment vehicles offer returns that beat mortgage interest rates, especially if you locked in when mortgage rates were low.
Josiah Wilmoth says that despite paying off the mortgage on his second house early, “I still carry the mortgage on my old house because the interest rate is in the low 2%, so it just didn’t really make financial sense to pay that one off. I figured we are better off investing it or even sticking it in a savings account.”
As mentioned, the S&P 500 has historically delivered an average return of nearly 10%. While investing in stocks is inherently risky, that rate of return is much higher than most mortgage rates. Even a safer option, such as a high-yield savings account, can deliver an interest rate of over 4%, which is higher than some mortgages, especially from when rates were at historic lows around 2020 and 2021. [3]
Invest in home improvements
Instead of making extra mortgage payments, you could invest that cash into home improvements that add value. The advantage of home improvements is that they’ll both make your home more enjoyable to live in and increase its value when you choose to resell.
Drake Shadwell says, “The main reason I held on to that cash was to reinvest it in the house. I deliberately bought a fixer-upper below market value and made it my plan to use that money to boost the home's value. I believe that return will be the best payoff of all!”
Because of how much the real estate market fluctuates, there’s no guarantee that home improvements will provide a greater return on your investment than extra mortgage payments would. However, the increase in quality of life that such improvements provide may be more important to you.
Should you make extra mortgage payments?
Paying off your mortgage even just a littel bit faster can save you thousands of dollars in interest. These savings are a guaranteed return that offers peace of mind and increased equity in your most important asset — your home.
However, if you have the surplus income to be making extra payments, you may want to consider other investment options as well. You might decide that investing extra cash is worth more than saving on mortgage interest, even if the savings are considerable. Also, note that your lender may have special restrictions or fines when it comes to prepaying your mortgage — so you want to really understand the terms of your loan before making a decision.
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