Why prepayment is so powerful, and when it isn't
A mortgage charges interest on the balance every month. Remove a dollar of balance and you stop paying interest on that dollar for the entire remaining term, that is the whole trick, and it compounds. There is no product to buy and no risk to take: the "return" is your own loan rate, locked in.
The same logic sets the limit: if your rate is low, the guaranteed return is low, and the money may serve you better elsewhere, an emergency fund first, employer retirement match always, then the honest comparison against investing. Prepayment is a choice about certainty as much as arithmetic.
The reference numbers
| Extra / month | Payoff time | Interest saved |
|---|---|---|
| $0 | 30 years | - |
| $100 | ~26 years 2 months | ~$51,000 |
| $200 | ~23 years 3 months | ~$90,000 |
| $500 | ~18 years | ~$160,000 |
($300,000 at 6%, 30 years.) Notice the curve: the first $100 saves $51k, the next $100 adds $39k, the next $300 another $70k. Powerful throughout, but with diminishing returns, which is why "some extra, consistently" captures most of the prize.
Order of operations for spare cash
- Emergency fund (3–6 months of expenses), liquidity beats yield in a crisis.
- Any employer retirement match, an instant 50–100% return no loan rate approaches.
- High-interest debt (cards, personal loans), see the debt payoff calculator; 24% beats any mortgage math.
- Then the mortgage-vs-invest decision, on your actual rate, with this page's number as the guaranteed side of the scale.
Two practical notes
- Prepaying does not lower the required payment. The obligation stays until the loan ends (that is what makes it end early). If a lower monthly obligation is the goal, that is a recast.
- Consistency beats heroics. A sustainable $150 every month outperforms an occasional $1,000 that stops when life happens. Set the extra as an automatic payment marked to principal, and re-run this page once a year as the balance falls.