One Extra Mortgage Payment Per Year: The Simple Strategy That Works
Mike Starr
Founder, MortgageWizardTools · M.S. Organizational Management
Making one extra mortgage payment per year is one of the simplest and most effective strategies to pay off your mortgage faster. It requires minimal budget impact but can save tens of thousands in interest and cut years off your loan.
How It Works
One extra payment per year goes entirely toward your principal balance. Because interest is calculated on the remaining balance, reducing the principal by one payment reduces all future interest charges — creating a compounding effect over the life of the loan.
How Much You Save
On a $400,000, 30-year, 6.5% loan:
| Regular | 1 Extra Payment/Year | |
|---|---|---|
| Monthly Payment | $2,528 | $2,528 + $2,528 once/year |
| Payoff Time | 30 years | ~25.5 years |
| Total Interest | $510,000 | ~$402,000 |
| Interest Saved | — | ~$108,000 |
| Years Saved | — | ~4.5 years |
One extra $2,528 payment per year saves about $108,000 in interest and pays off 4.5 years early.
How to Fit It Into Your Budget
- •Divide by 12 — add $211/month to your regular payment ($2,528 + $211 = $2,739)
- •Use your tax refund — apply it as a lump-sum principal payment each spring
- •Use a bonus — apply year-end or performance bonuses
- •Biweekly payments — 26 half-payments = 13 full payments (automatic one extra)
- •Automate it — set up an automatic extra transfer once per year
Which Method Is Best?
| Method | Effort | Effectiveness |
|---|---|---|
| Divide by 12 (add to monthly) | Low — set once | Same as one extra payment |
| Tax refund lump sum | Medium — once/year | Same as one extra payment |
| Biweekly (26 half-payments) | Medium — set up with bank | Same as one extra payment |
The "divide by 12" method is the easiest — you simply increase your monthly payment by 1/12, and the effect is identical to one extra payment per year.
Important Tips
- •Verify application to principal — ensure your servicer applies the extra to principal, not future payments
- •No prepayment penalty — confirm your loan has none (most modern loans do not)
- •Keep an emergency fund — do not sacrifice savings for extra payments
- •Consider your rate — if your rate is below 5%, investing may be a better use of extra cash
Key Takeaways
- •One extra payment per year saves about $100,000+ on a typical 30-year loan
- •The easiest method is adding 1/12 to each monthly payment
- •You can also use a tax refund or bonus as a lump-sum principal payment
- •Verify your lender applies extras to principal
- •Use our Extra Payment Calculator to see your savings