Making extra payments on your mortgage can be a powerful way to pay off your loan faster and save on interest. But is it worth paying extra on a 15-year mortgage, where the payments are already higher and the loan term shorter? In this article, we’ll explore the benefits and potential drawbacks of making extra payments on a 15-year mortgage, and help you decide if it’s the right financial move for you.
The Math: Extra $300 a Month on a 15-Year vs. a 30-Year
Extra payments save money by preventing future interest. A 30-year loan has decades of interest left to prevent. A 15-year loan has much less, so the same extra dollar does far less work.
Same $350,000 loan, extra $300 a month from the first payment:
30-year at 6.38%:
- Monthly payment: $2,185
- Total interest with no extra payments: ~$436,000
- Extra $300/month saves: ~$139,000
- Paid off about 8 years early
15-year at 5.75%:
- Monthly payment: $2,906
- Total interest with no extra payments: ~$173,000
- Extra $300/month saves: ~$26,600
- Paid off about 2 years early
The same $300 a month saves about five times more on the 30-year loan. Timing matters too. On the 15-year loan, starting the extra $300 in year 1 saves about $26,600. Waiting until year 10 to start saves only about $3,700.
Pay Extra or Invest? The Fair Comparison
The real question is what else that $300 a month could do. To compare fairly, spend the same cash each month for 15 years under both plans:
- Plan A, prepay: pay $300 extra on the mortgage. It's gone in about 13 years. Then invest the full $3,206 a month for the remaining 2 years.
- Plan B, invest: make the regular payment and invest $300 a month from day one.
What you have after 15 years, by investment return:
- 4.2% (high-yield savings): Prepay $84,100 vs. invest $75,000. Prepaying wins by about $9,000.
- 5.75% (equal to the mortgage rate): about $85,400 either way.
- 6%: Prepay $85,700 vs. invest $87,200.
- 7% (long-run stock market average after inflation): Prepay $86,600 vs. invest $95,100. Investing wins by about $8,500.
The break-even point is your mortgage rate. If your investments beat it, investing comes out ahead; if they don't, prepaying does. Either way, the gap over 15 years is under $10,000 on this loan. Investment returns aren't guaranteed and are taxed in a regular brokerage account, while the interest you avoid by prepaying is a guaranteed saving.
Because the money difference is small, other factors usually decide it: whether you have an emergency fund, whether you're capturing a 401(k) match, whether you carry higher-rate debt, and how much you value having cash you can reach.
How extra payments work
Loan Amortization Explained
When you take out a mortgage, your payments are structured so that, over time, you gradually pay off both the interest and the principal. This process is known as amortization. In the early years of your mortgage, a larger portion of your payment goes toward interest, while later on, more goes toward the principal. By making extra payments, you reduce the principal faster, which in turn reduces the amount of interest you’ll pay over the life of the loan. Our amortization calculator shows the split at every point in the schedule.
Principal Reduction
Every extra payment you make directly reduces the principal balance of your mortgage. This not only shortens the length of your loan but also reduces the amount of interest you’ll pay, since interest is calculated on the remaining balance. On a 15-year mortgage, where the loan term is already shorter, these extra payments change your payoff date much less than they would on a 30-year loan.
Interest Savings
On a $350,000 15-year loan at 5.75%, making one extra payment a year (the same effect as biweekly payments) cuts about 20 months and saves about $22,000 in interest. The same habit saves far more on a 30-year loan. Compare the two in the mortgage payoff calculator.
Benefits of paying extra on a 15-year mortgage
Faster Loan Payoff
The primary benefit of making extra payments on a 15-year mortgage is that you can pay off your loan even faster, e.g. in 12 to 13 years. This can be particularly appealing if you’re approaching retirement or simply want to eliminate debt as quickly as possible. The sooner you pay off your mortgage, the sooner you’ll have more financial freedom to pursue other goals.
Guaranteed Savings
Every dollar of interest you avoid is a guaranteed return equal to your mortgage rate. Unlike an investment, it can't lose value.
Financial Security
Paying off your mortgage faster can provide a significant sense of financial security. Without the burden of a mortgage payment, you’ll have more flexibility in your budget, which can be especially beneficial if you face unexpected expenses or want to focus on other financial priorities.
Drawbacks of Paying Extra
Opportunity Cost
The money used for extra payments could earn more invested elsewhere if returns beat your mortgage rate, as the comparison above shows.
Reduced Liquidity
Money you prepay into your mortgage is locked in your home equity. You can't get it back without refinancing, borrowing against the home, or selling. If you face unexpected expenses, such as medical bills or home repairs, you need cash you can reach. Make sure extra payments won’t leave you without an adequate emergency fund.
If you have a lump sum and want a lower payment without giving up liquidity permanently, a mortgage recast is often the better tool.
Prepayment Penalties on Non-QM Loans
Conventional and government-backed mortgages like FHA and VA do not have prepayment penalties. Some non-QM mortgages, like DSCR loans for investors, come with prepayment penalties, which are fees charged if you pay off your loan early. If your mortgage has such penalties (e.g. 6 months of interest), it’s essential to factor them into your decision, as they could offset the savings from making extra payments. See our non-QM loan guide for how these products work.
When paying extra may be right for you
Stable Financial Situation
If you have a stable income, a fully funded emergency fund, no higher-rate debt, and you're already capturing your full 401(k) match, extra payments on your mortgage are a reasonable, guaranteed use of extra cash.
Higher Mortgage Rates
The higher your mortgage rate, the more prepaying is worth. If your rate is above what you'd realistically expect to earn investing, prepaying wins.
Retirement Planning
If you’re nearing retirement, paying off your mortgage before you retire can provide peace of mind and reduce your financial obligations. Without a mortgage payment, your retirement income can be used for living expenses, travel, or other pursuits, giving you more flexibility in your golden years.
Alternative strategies
Capture Your 401(k) Match First
An employer match is an immediate return that no mortgage prepayment can beat. If you're not contributing enough to get the full match, start there.
Pay Off Higher-Rate Debt First
Credit cards, car loans, and personal loans usually carry higher rates than a 15-year mortgage. Pay those off first.
Building an Emergency Fund
Before making extra payments, ensure that you have a robust emergency fund of 3 to 6 months of expenses. Once it's funded, you can then consider making extra mortgage payments.
Frequently Asked Questions
Is it worth paying extra on a 15-year mortgage?
It saves less than most people expect. An extra $300 a month on a $350,000 15-year loan at 5.75% saves about $26,600 and pays the loan off about 2 years early. The same amount on a 30-year loan at 6.38% saves about $139,000. Whether it's worth it depends on whether you could earn more than your mortgage rate elsewhere.
How much does an extra $200 a month save on a 15-year mortgage?
On a $350,000 loan at 5.75%, an extra $200 a month saves about $18,700 in interest and shortens the loan by about 1.4 years. On a 30-year loan at 6.38%, the same $200 saves about $105,000 and cuts about 6 years.
Should I pay off my 15-year mortgage early or invest?
Compare your expected investment return with your mortgage rate. If you expect to earn more than the rate, investing usually comes out ahead; if not, prepaying does. On a 15-year loan the difference is often small, so liquidity, your emergency fund, and any 401(k) match usually matter more.
What should I prioritize before making extra mortgage payments?
In this order: an emergency fund of 3 to 6 months of expenses, high-interest debt such as credit cards, your full 401(k) employer match, other retirement contributions, then extra mortgage payments.
Are biweekly payments worth it on a 15-year mortgage?
Biweekly payments add up to one extra monthly payment a year. On a $350,000 15-year loan at 5.75%, that saves about $22,000 in interest and pays the loan off about 20 months early.
Conclusion
Paying extra on a 15-year mortgage saves far less than paying extra on a 30-year mortgage, because there's much less interest left to prevent. Compared with investing, the result is close: prepaying wins when your investments would earn less than your mortgage rate, and investing wins when they'd earn more. Since the money difference is small, put your emergency fund, higher-rate debt, and 401(k) match first. On a 30-year mortgage, extra payments have a much bigger effect — we work through that math in smart extra payments to mortgage principal. Check current 15- and 30-year pricing at rates.altgage.com.
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