What Does an Extra $500 a Month Save on a Mortgage?

An extra $500 a month goes straight to your principal balance. This accelerates your payoff and drastically reduces the total amount of interest you will pay over the life of the loan. On a typical $300,000 mortgage, it can cut over a decade off your term.

Depending on your interest rate and loan balance, an extra $500 a month can easily save you $100,000 to $150,000 in interest on a typical 30-year mortgage.

If your mortgage rate is high (e.g., above 6-7%), paying extra on your mortgage gives you a guaranteed, risk-free return equal to your rate. If your rate is low (e.g., under 4%), you might be better off investing the $500 in an index fund for higher long-term average returns.

The sooner you start, the more you save. Because mortgages are amortized to pay the most interest in the early years, an extra $500 in year one saves you much more than an extra $500 in year ten.