Your mortgage is probably the biggest bill you pay every month. You signed up for a 30-year loan, and you might feel like you’re going to be paying it forever. But here’s the thing: you don’t have to stay on that schedule. One simple strategy can knock years off your mortgage and save you a pile of money in interest. It’s called making one extra mortgage payment a year. And it’s a lot easier than it sounds.
The idea is straightforward. Pay your regular monthly mortgage payment every month as you normally do. Then, once a year, make one additional payment. That doesn’t mean you need to come up with a huge lump sum. You can spread it out. Take your monthly payment, divide it by 12, and add that amount to each month’s payment. By the end of the year, you’ve made the equivalent of 13 payments instead of 12. That extra payment goes straight to paying down what you owe on your home.
Why does this work so well? Because of how mortgages are set up. In the early years of a mortgage, most of your payment goes toward interest, not toward the actual house. The bank gets its cut first, and you slowly build equity. By making an extra principal payment, you start chipping away at the real balance much faster. That means less interest builds up over time, and the loan gets paid off sooner.
Let’s use a realistic example. Say you owe $200,000 on a 30-year fixed mortgage at 6%. Your monthly payment is about $1,200. If you make one extra payment of $1,200 every year, a typical mortgage calculator will show that you can knock about five and a half years off your loan. That’s five and a half years of payments you don’t have to make. You also save tens of thousands of dollars in interest. Over the life of the loan, we’re talking nearly $50,000 or more. That’s real money. That could be a new car, a college fund, or a comfortable cushion in retirement.
Now, how do you actually pull this off? You have two good options. The first is to send a one-time lump sum payment once a year. Many people use their tax refund, a work bonus, or money from a side job. If that’s you, great. Just make sure you tell the lender that you want the payment applied to the principal. Don’t assume the extra money will automatically go where you want it to go. Some lenders will tack it onto your next month’s payment or stick it in an escrow account for taxes and insurance. That won’t help you pay down your loan any faster. You have to be clear. Write “apply to principal” in the memo, or use the online payment tool if your lender has a specific spot for extra principal payments.
The second option is to set up automatic extra payments. You can ask your bank or mortgage servicer to add a small amount to your monthly payment. For example, if your monthly payment is $1,200, you could set it to $1,300. That extra $100 goes toward principal every month. It’s automatic, so you don’t have to think about it. You won’t even miss the money after a month or two. This is the easiest way to make one extra payment a year without having to come up with a big chunk of cash all at once.
But here’s a warning. Your mortgage payment usually includes more than just principal and interest. It often includes property taxes and homeowners insurance that get held in escrow. When people talk about making an extra mortgage payment, they mean the principal and interest portion, not the extra money for taxes and insurance. If you just take your total mortgage payment and add 1/12 of that, part of it might go into escrow instead of paying down your loan. So focus on the actual loan payment amount, not the full bill. If you’re not sure what that number is, call your lender and ask. It’s better to spend five minutes on the phone than to think you’re getting ahead when you’re really not.
Is this strategy right for everyone? Not necessarily. If you have high-interest credit card debt, pay that off first. A mortgage interest rate of 6% or 7% is low compared to an 18% or 22% credit card. And if you don’t have an emergency fund, build one before you start making extra mortgage payments. You don’t want to put all your spare cash into your house and then have nothing left if your car breaks down or you lose a job. But if you have a steady income, manageable debt, and some savings, then making one extra payment a year is a rock-solid move.
The beauty of this strategy is that it doesn’t require a huge sacrifice. You don’t have to live like a hermit or give up vacations. You just make one extra payment a year, or a little extra each month, and let time do the work. If you can swing it, you’ll be amazed at how quickly the balance starts dropping. And after a few years, you might even start making two extra payments a year. The sooner you start, the better. Every month you wait means more interest gets added to what you owe.
Payday is never going to feel quite as exciting as the day you make your final mortgage payment. But that day gets here a lot sooner with this small, steady habit. One extra payment a year is simple. It’s automatic. And it’s one of the smartest things you can do for your long-term payoff plan. Start now, and your future self will thank you.
