The Effect of Overpaying a Mortgage

When taking on a new mortgage, go over your long-term goals with your partner. Some prospective homeowner fully intend to stay in the house for the duration of a mortgage. Others only want to stay for a few years. In either case, overpaying your mortgage can help you achieve certain goals.


Overpaying your mortgage is also called "prepaying" the loan. With this strategy you must send additional principal payments each year to reduce the balance more quickly than planned. You can send one or more extra payments each year or make bi-weekly payments, which results in 13 months of payments instead of 12 for the year. This strategy has a number of benefits that you can talk over with your partner.

Lower Interest

One of the most attractive benefits of overpaying a mortgage is that you reduce the amount of interest you have to pay over the life of the loan. To give an example, say you have a 30-year mortgage at 7 percent interest for $200,000. The total interest you'll pay in this hypothetical mortgage loan is $279,017.80. If you decide to pay one extra payment at the end of each year, the total interest goes down to $213,321.25, which saves you more than $65,000 over the life of the loan. Use the Bankrate mortgage payment calculator to figure out your own savings from overpaying.

Free up Cash

Some people choose to overpay a mortgage because they simply don't want to have to make payments for the full 30 years. Paying off the mortgage early allows you to free up cash from your monthly budget after the loan is paid off. For example, if you plan to retire in 20 years and don't want to have to continue making payments after that year you can start sending extra payments now. Discipline yourself to overpay your mortgage starting today while employed so that when retirement begins you have money to yourself to spend as you wish. This strategy makes sense if you plan to keep the same house for the long haul.


Check your mortgage terms before deciding to overpay your mortgage. Some mortgage lenders include prepayment penalty clauses in the agreement that penalize you if you make early payments. The prepayment penalty is commonly either a percentage of the loan or six months' worth of interest. Talk to your lender to see if the company charges additional fees when you make additional or bi-weekly payments.

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