When prepaying wins (and when investing wins)
Above ~6% mortgage rate, prepayment usually wins on a risk-adjusted basis — it's a guaranteed return with no volatility. Below ~4.5%, long-run equity returns (~10% nominal, ~7% real) historically outperform. Between 5–6% is a judgment call about how much you value guaranteed vs. expected returns, and whether you have the discipline to actually invest the alternative.
The 'invest the difference' fallacy
Studies show 60–70% of homeowners who choose not to prepay don't actually invest the difference — they spend it. If you're not religiously diverting the $300/mo into a brokerage account and leaving it there for 25 years, you're not really 'investing the difference.' For most people, the mortgage acts as a forced savings vehicle that the brokerage account doesn't.
Recast vs. extra payments vs. refinance
Three paths after a lump sum. (1) Apply to principal only: shortens the term, keeps the monthly payment the same. (2) Recast: most servicers will re-amortize after a $5K+ principal payment, lowering the monthly payment to match the new balance over the original term — costs $250–500 and is a no-credit-check operation. (3) Refinance: only worth it if rates have dropped 0.75%+ AND you'll stay 4+ years to recoup closing costs.
Watch the servicer apply your payment correctly
Mortgage servicers default extra payments to 'paid ahead' on future installments unless you explicitly mark 'apply to principal.' Paid-ahead doesn't shorten the loan or save interest. Write 'apply to principal' on every check, and verify via your servicer's payment portal — most have a 'pay extra principal' separate field.
FAQ
Is paying extra on my mortgage smart?
Above 6% mortgage rate: usually yes, especially if it doesn't displace 401(k) match or push out emergency fund. Below 4.5%: usually no — equity markets are expected to outperform. Between 4.5–6%: depends on risk tolerance and discipline.
Should I pay extra each month or do a big lump sum?
Mathematically nearly identical — total prepayment savings are a function of total principal eliminated, not timing. Practically, monthly extras are easier to sustain; lump sums are better when they come from windfalls (tax refund, bonus, inheritance).
Should I refinance or prepay?
Both, ideally in that order. Refinance if rates have dropped 0.75%+ — locks in lower rate. Then prepay if your budget allows. Prepaying first then refinancing means you re-amortize the lower balance, which slightly favors prepayment-then-refi if you're committed to staying in the home.
Does my mortgage have prepayment penalties?
Most modern (post-2014) conforming, FHA, and VA loans have NO prepayment penalty. Some jumbo, non-QM, and subprime loans charge 1–3% of the prepaid amount in years 1–3. Check your closing documents for 'prepayment' language.
Will my monthly payment drop if I pay extra?
No — extra payments shorten the term but don't change the required monthly payment. To lower the monthly payment, you need a 'recast' (re-amortization after a lump sum) which most servicers offer for $250–500.
Is mortgage interest still deductible?
Yes on the first $750K of mortgage debt (2026), but only if you itemize. With the $30K joint / $15K single standard deduction, most homeowners no longer itemize, meaning the after-tax mortgage rate equals the nominal rate for most people.
How this calculator is built
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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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Last reviewed
June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
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See our editorial policy and disclaimer. Results are estimates, not advice.