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Should I Pay Extra on My Mortgage Each Month?


A lot of people ask AAFMAA Mortgage Services LLC (AMS) which benefits (if any) they would reap by paying a little more toward their mortgage payment each month. The simple answer is that it really depends on their individual situation and how that’s likely to change in the coming years. Plus, it depends on the interest rate and original terms of the loan.

If this is something that’s on your mind, you’ll also have to consider other questions, such as: Will you be staying in your home for long enough to enjoy the benefits of paying more? Will you have a change in income due to retiring or starting a second career? Are you already stretched thin each month, or do you have extra funds you can afford to spend on your home expenses?

Pros of Paying Extra on Your Mortgage

The benefit of paying additional principal on your mortgage is twofold. You’ll lower your monthly interest rate expense a bit at a time. Plus, you’ll be paying down your outstanding loan balance, thus building your home equity faster, and reducing the total interest over the life of the loan.

Let’s consider three ways you could pay extra on your mortgage:

  • Make one additional monthly mortgage payment each year
  • Pay more on each payment every month
  • Apply a lump sum to your unpaid principal mortgage balance once per year, such as with your tax return

Here’s how that could play out. Suppose you buy a home for $250,000 and put 20% down ($50,000) and the unpaid principal mortgage balance is $200,000 based on a 30-year term and 7.0% interest rate. The principal and interest part of your mortgage payment would be about $1,331 per month with an estimated $279,018 in interest paid over the life of the loan (e.g., 30 years). If you make extra payments, this is what may happen:

Payment Method You'll Be Paying for... Total Interest Total Interest Saved
Make standard minimum payment every month* 30 years $279,018 $0
13 payments a year* 24 years $213.762 $65,256
Adding $100 each month* 24 years, 3 months $215,709 $63,309
Adding $150 each month* 22 years, 3 months $194,822 $84,196

*Note: The example in the table above assumes a principal and interest payment of $1,331 per month. The “13 payments per year” example assumes an extra principal and interest (P&I) payment is made at the start of year two. Please contact us to understand what your potential savings could be and help you determine the impact of extra payments on your mortgage. Also, be sure to check out our Extra Payments Benefit Calculator available on YourMilitaryMortgage.com.

Cons of Paying Extra on Your Mortgage

Of course, tying up your cash in your home leaves less “liquid” or available money in your other financial accounts — money you may need for unforeseen expenses such as home repairs or medical bills. Plus, depending on your situation, there could be smarter uses for that money, such as paying down high-interest credit cards or loans, contributing to your retirement accounts, or putting it into an emergency fund. Thinking these considerations through can help you determine which “extra” payment option is right for you and what the timing of it should be.

Things to Know about Extra Mortgage Payments

If you decide to make extra payments on your mortgage, make sure you earmark them with your lender so they’ll go toward your loan’s principal balance. Ask your lender for instructions on how to do this and make sure you do it correctly because, if you don’t, those payments could be applied toward your next monthly payment, or even your escrow if your homeowner’s insurance and property taxes are included in your normal monthly payment. That won’t help you achieve your goal of paying your mortgage off sooner and saving interest over the long term.

Also be aware of how much equity you have in your home. Paying down your mortgage principal at a faster rate helps eliminate Private Mortgage Insurance (PMI) faster — if you have mortgage insurance on your loan. PMI is required on conventional mortgages if you don’t have at least 20% down on your home purchase. Once your equity (how much you own versus how much you owe) reaches at least 20%, you can ask the lender to remove the PMI that’s part of your monthly mortgage payment, if applicable.

Personal Experience

For some homeowners, paying extra on a mortgage is truly a benefit. 

It can be especially important for military families who plan to move before paying off their home. Building principal or “equity” in a home can help when refinancing. However, you should always consult with a professional for help in assessing your financial goals, income and budget to decide what’s right for you.

We’re Here to Help

If you’re not certain about whether or not it’s the right time to purchase or refinance your home or how extra payments will affect your budget and mortgage goals, please contact us online today or call 844-422-3622. One of our licensed Military Mortgage Advisors, also known as Mortgage Loan Originators, will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs.

Ensuring existing and prospective AAFMAA Members obtain the best mortgage possible is our mission. Get your free AMS mortgage assessment today!

This article was originally published May 11, 2021.