The honest version of the debate
Paying off a 6.25% mortgage is a guaranteed, tax-free 6.25% return. Investing might return 8–10% but might return −20% in any given year. Above roughly 6%, the payoff argument is strong. Below 4%, the arithmetic favours investing by a wide margin — but only if you genuinely invest the difference every single month, which most people do not.
Front-loaded interest is why timing matters
In year one of a 30-year loan, roughly three-quarters of each payment is interest. By year 25 it is a small fraction. A $500 extra payment in year two removes far more total interest than the same $500 in year twenty — the earlier the dollar lands, the more compounding it cancels.
Before you overpay, check three things
Is there a prepayment penalty (rare now, but check)? Does your servicer apply extra money to principal automatically, or does it sit as a prepaid future payment — you usually must specify 'apply to principal'? And are you still getting the full employer retirement match, which beats any mortgage rate?
Biweekly payments: a smaller trick than advertised
Paying half your mortgage every two weeks produces 26 half-payments — one extra full payment a year. It typically cuts a 30-year loan by 4–6 years. That is real, but it is just a 1/12 extra payment in disguise; you can do the same by adding 8.3% to each monthly payment without paying a service to set it up.
FAQ
How much sooner will I pay off my mortgage with extra payments?
It depends on the balance, rate and extra amount. On a typical $285,000 balance at 6.25% with 26 years left, an extra $500 a month clears it roughly 9 years early and saves well over $100,000 in interest. The calculator gives your exact figures.
Should I pay off my mortgage or invest?
Compare your mortgage rate against a realistic after-tax investment return, then weight for risk. Above about 6% the payoff usually wins on a risk-adjusted basis. Below 4% investing usually wins — provided you actually invest the difference consistently.
What is Baby Step 6?
Paying off the home early, after you are debt-free otherwise, hold a full emergency fund, are investing 15% for retirement, and have handled college funding. It is deliberately last because the earlier steps carry higher returns or lower risk.
Does an extra payment go to principal automatically?
Not always. Many servicers apply unlabelled extra money to the next scheduled payment instead of principal, which saves nothing. Use the 'additional principal' field or write the instruction on the payment.
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Written by Sam Doshi and the RevenueLab editorial team. We don't sell the data feeds this tool is built on.
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