How much time and money can you really save paying a little extra on the mortgage? Well, it depends on how much you spend and when you spend it.

When most people think of loan payments and amortization schedules, they view them as linear. An additional dollar towards the mortgage now is the same as a dollar later. Or the more you pay towards principal every month, the more benefit you receive. Neither of these are true.

How Additional Monthly Payments Affect Your Principal

Let’s look at an example to see how it actually works.

Additional Monthly Payment Time saved Interest Saved
$30 1 year 2 months $13,458
$60 2 years 4 months $25,560
$150 5 years 2 months $55,605
$300 8 years 8 months $91,742
$500 12 years $124,385
$1,000 16 years 11 months $170,620

The first thing you’ll notice is that paying a little more each month saves you money over the long term. With just $30 in additional principal payments a month, which most of us can afford and wouldn’t notice, you can save over a year of payments and $13,458 in interest. If you upped it to $300 a month, you save $91,742 over the life of the loan. That’s equivalent to a few years’ wage for most people.

Now, the most important thing to notice about this chart is that for every additional dollar put towards principal, you get less of a return than the previous dollar. It’s called diminishing returns. That’s not what most people would expect because we’re used to getting more when we pay more.