Debt

Extra mortgage payment

Also known as: principal prepayment.

An extra mortgage payment is money applied to a loan ahead of schedule to reduce the outstanding principal early, choosing between shortening the term or lowering the instalment.

Shortening the term maximizes interest savings; lowering the instalment improves monthly cash flow and reduces risk if income is unstable.

The savings equal a guaranteed return equal to the loan's rate, which matters most when that rate exceeds what you'd expect from a conservative investment.

Put it into practice

Related terms

Amortizing loan — An amortizing loan (level-payment schedule) is a repayment method where the instalment stays constant while, within it, the interest portion shrinks and the principal portion grows over time.
Liability — A liability is an outstanding payment obligation: a mortgage, personal loan, consumer credit, card balance or debt owed to someone else.
APR — APR (annual percentage rate) is the effective annual cost or yield of a financial product, including interest, fees and charges, and it's the figure that lets you compare offers.

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Educational content. netclariq does not provide financial, investment, tax or legal advice.