Making one extra mortgage payment per year is popular because it is easy to understand: send the equivalent of a 13th payment and reduce the balance faster. The actual savings depend on your rate, remaining term, balance, and whether the payment is posted as principal.
What one extra payment really means
A standard monthly mortgage payment includes principal and interest, and may also include escrow for taxes and insurance. An extra annual mortgage payment is usually meant to go beyond the required payment and reduce principal.
The most common approach is to save one-twelfth of the payment each month, then send that amount as a principal-only payment once per year. Some homeowners use a bonus, commission, or tax refund instead.
Why it can be worth it
Mortgage interest is based on the unpaid principal balance. When an extra payment lowers the principal, future interest is calculated on a smaller balance. That can shorten the loan even if the required monthly payment stays the same.
The earlier you make the extra payment, the more months it has to reduce future interest. That is why the same extra payment can matter more early in a 30-year mortgage than near the final years of the loan.
When monthly extras may work better
Monthly extra payments can reduce principal sooner than waiting for one annual payment. If your budget can handle a smaller monthly add-on, it may create slightly more interest savings because the balance falls earlier.
Annual payments can still be practical when income is seasonal or when you prefer to keep monthly cash flow predictable. The best schedule is the one you can repeat without creating stress elsewhere.
How to test the payoff effect
Use the Extra Mortgage Payment Calculator to compare an annual extra payment with a monthly extra payment. Then check the payoff date and total interest for each scenario.
If you are comparing a biweekly plan, use the Biweekly Mortgage Calculator as a separate scenario. A true biweekly plan can produce a similar 13th-payment effect, but timing and fees can differ.
Before you send the extra payment
Confirm how your servicer applies extra money. Some payment portals have a specific principal-only field, while others require instructions. Keep the confirmation in your records so you can verify the balance changed as expected.
Also review whether your loan has any prepayment terms. Small extra principal payments usually are not an issue for many loans, but it is still worth checking your documents and servicer rules.
Helpful references
- CFPB: How paying down a mortgage works
- HelpWithMyBank.gov: Extra mortgage payments and principal
- CFPB: What is a prepayment penalty?
Run your numbers
Test one extra payment per year.
Compare annual extra principal with monthly and biweekly strategies before changing your payment routine.