Overpaying Your Mortgage: What an Extra $200 a Month Really Saves

A common way to think about overpaying a mortgage goes like this: "If I pay an extra $200 a month, I'll pay off $200 more a month, so I'll finish a little early." That undersells it. Every extra dollar reduces the balance that next month's interest is charged on, and the month after that, and so on for the rest of the loan. Small amounts compound into large savings.

This guide shows how large, using the same arithmetic as our Mortgage Calculator, and then covers what to check before you send a lender any extra money. The rules on that differ a lot between the US, the UK, Canada and Australia.

Before and after: one mortgage, four ways to pay it

The example is a $300,000 mortgage at 6% over 30 years, with interest worked out monthly. The regular payment is $1,798.65 a month. Here is what happens when you add a fixed amount to every payment:

With $200 a month extra, the loan is gone 81 months early. The bigger the extra, the bigger the saving, though each additional dollar saves a little less than the one before, because the loan is already shrinking faster.

You can check the regular payment by hand with the standard formula: payment = P × r ÷ (1 − (1 + r)⁻ⁿ), where P is $300,000, r is the monthly rate (6% ÷ 12 = 0.005) and n is 360 months. It comes to $1,798.65.

Why the early years matter most

In the first year of this mortgage you pay $21,583.80. Of that, $17,899.80 is interest and only $3,684.00 reduces the loan. In other words, about 83 cents of every dollar goes to interest. By the last year, the split has flipped: $685.49 of interest and $20,899.75 of principal.

An extra payment in year 1 cuts the balance that 29 more years of interest are charged on. The same payment in year 25 has only five years left to work. Australia's regulator makes the same point on its Moneysmart site: in the early years of a home loan most of your repayment goes towards interest, so extra payments then reduce the interest over the life of the loan.

Monthly extras or a lump sum once a year?

Suppose you'd rather pay $2,400 in one go at the end of each year than $200 a month. It's the same money each year, but it arrives later:

• $200 a month: paid off in 279 months, saving $91,173.87.
• $2,400 at the end of each year: paid off in 281 months, saving $87,882.99.

The monthly route saves $3,290.88 more, simply because each $200 starts cutting interest up to eleven months sooner. If your extra money comes as a yearly bonus or tax refund, a lump sum is still very effective; the lesson is just that sooner beats later.

Does paying every two weeks help?

It depends entirely on which kind of two-weekly payment you mean.

• Accelerated: you pay half the monthly payment ($899.33) every two weeks. With 26 two-week periods in a year, that's the same as 13 monthly payments instead of 12. On our example the loan is paid off in about 24 years 6 months, saving $75,420.95.
• Plain (non-accelerated): you pay the yearly total of 12 monthly payments split into 26 ($830.15 each). You pay no more each year, and the saving is just $2,428.65, from slightly earlier payments.

So the benefit comes from the extra payment hidden in the accelerated schedule, not from the two-weekly timing itself. Moneysmart describes fortnightly repayments of half the monthly amount the same way: the equivalent of an extra month's repayment each year.

Before you overpay: the rules where you live

Everything above assumes the lender accepts extra payments for free. Many don't, or only up to a limit. Check your own contract first; here's what the official sources in each country say.

United States

The Consumer Financial Protection Bureau describes a prepayment penalty as a fee some lenders charge if you pay off all or part of your mortgage early. It says penalties usually apply if you pay off the whole balance, for example by selling or refinancing, within a set period, usually three or five years, and in some cases if you pay off a large amount at once. Small extra payments usually don't trigger one, but it advises checking with your lender. Not all mortgages have a prepayment penalty.

United Kingdom

UK mortgages can carry an early repayment charge. The Financial Conduct Authority's rules (MCOB 12.3.1) say a lender can only charge one that can be expressed as a cash value and is a reasonable pre-estimate of the lender's costs from you repaying early. Whether you can overpay without a charge, and how much, is set out in your mortgage offer, so look there before you overpay.

Canada

The Financial Consumer Agency of Canada explains that your prepayment privileges are the amount you can put towards your mortgage on top of your regular payments without a penalty. Pay more than that, or pay off the whole mortgage before the end of the term, and a penalty may apply. It's usually the higher of three months' interest on what you still owe or the interest rate differential. An open mortgage lets you prepay without a penalty.

Canada's Interest Act requires a blended-payment mortgage to state its interest rate "calculated yearly or half-yearly, not in advance", and our Mortgage Calculator has a semi-annual compounding setting for Canadian mortgages. On a $400,000 mortgage at 5% over 25 years with semi-annual compounding, the monthly payment is $2,326.42. Switching to accelerated two-weekly payments saves $48,348.86 and 42 months. A $10,000 lump sum at the end of each year saves $126,100.87 and 118 months, provided it fits within your prepayment privileges.

Australia

Moneysmart advises checking with your lender whether extra repayments are allowed and whether any fees apply. It notes that fixed-rate loans may limit extra repayments and may charge a break fee if you pay off the loan early, while many variable loans allow extra repayments. Variable loans often come with an offset account, whose balance reduces the amount your interest is calculated on, or a redraw facility that lets you take extra repayments back out.

Should you overpay? A short decision guide

Overpaying is a guaranteed saving at your mortgage rate, but it isn't automatically the best use of spare money. Questions worth asking first:

1. Do you have higher-interest debt? A credit card at 20% or more costs far more than a mortgage. Our guide to the debt avalanche and snowball methods shows how to clear it first.
2. Do you have an emergency fund? Money paid into a mortgage can be hard to get back unless your loan has a redraw or offset feature. Make sure you'd still have cash for a surprise bill.
3. Will you pay a penalty or charge? Check prepayment penalties, overpayment limits and fixed-rate break costs, as described above.
4. What would the money earn elsewhere? Compare your mortgage rate with what you could earn on savings after tax. The Savings Goal Calculator helps you see the other side of the comparison.
5. Lower payment or shorter term? Ask your lender whether an overpayment lowers your regular payment or keeps it the same and shortens the term. The time savings in this guide assume the payment stays the same.

Try it with your own mortgage

Enter your balance, rate and remaining term in the Mortgage Calculator, then add an extra monthly or yearly payment, or switch to two-weekly payments. It shows the new payoff date and the interest saved compared with your current schedule. For any other loan, the Loan Calculator works the same way.

Last reviewed: 11 October 2026. The prepayment rules above were checked against the official sources listed below on that date; your own loan contract is what applies to you. The mortgages in this guide are examples. This is general information, not financial advice.