Extra payments go directly to principal, reducing your balance faster and saving on interest. For example, adding $200/month to a $350,000 loan at 7% can save over $100,000 in interest and pay off your mortgage 7+ years early.
The most effective strategies include making one extra payment per year, rounding up your payment, or adding a fixed extra amount monthly. Even small additions of $50-100/month make a significant impact over the life of the loan.
Compare your mortgage rate to potential investment returns after taxes. If your mortgage rate is 7% and investments return 8-10%, investing may yield more. However, paying off your mortgage provides guaranteed savings equal to your interest rate and reduces risk.
Most modern mortgages do not have prepayment penalties, especially for conforming conventional, FHA, and VA loans. However, some non-QM and jumbo loans may have prepayment penalties for the first few years. Check your loan documents or ask your lender.