What an extra €100 a month actually does to your mortgage
Overpaying a loan saves far more than the amount you overpay. Here is why the effect is non-linear, and how to work out the saving for your own loan.
Published
Paying an extra €100 a month on a mortgage doesn’t save you €100 a month. It saves considerably more, and the reason is worth understanding, because it also tells you when overpaying is worth doing.
Where your payment actually goes
On an annuity loan your monthly payment is fixed. What it’s made of isn’t. Early on, most of it is interest. Late on, most of it is principal.
Take €250,000 over 30 years at 6.5%. The monthly payment is about €1,580. In month one:
- Interest: €1,354
- Principal: €226
You paid €1,580 and reduced the debt by €226. That ratio is what makes the early years of a mortgage feel like standing still.
Why an extra payment is different
An extra payment doesn’t get split. All of it goes against the principal.
So that €100 does two things. It reduces the balance by €100 straight away. And it removes the interest that €100 would have generated for the whole remaining term, which could be decades of it.
The second effect is much bigger than the first, and it’s why the saving is non-linear.
The numbers
Same loan: €250,000, 30 years, 6.5%.
| Extra per month | Payoff time | Total interest | Interest saved |
|---|---|---|---|
| €0 | 30 yr 0 mo | €318,861 | — |
| €50 | 27 yr 5 mo | €283,105 | €35,756 |
| €100 | 25 yr 5 mo | €256,668 | €62,193 |
| €200 | 22 yr 3 mo | €218,092 | €100,769 |
| €500 | 16 yr 8 mo | €153,846 | €165,015 |
An extra €100 a month costs you €30,500 over the life of the loan and saves €62,193 in interest. You more than double your money, and you finish four and a half years early.
The catch: it depends on the rate
Overpaying is really an investment that returns your mortgage rate, tax-free and risk-free. So the comparison is straightforward.
If your mortgage rate is higher than what savings earn, overpay. If it’s lower, invest instead.
At 6.5% you’d need to reliably beat 6.5% after tax somewhere else to come out ahead. At 1.8%, where plenty of European fixed-rate mortgages still sit, that’s a much easier bar, and overpaying is often the worse choice.
Check the small print too. Some lenders cap penalty-free overpayments at a percentage of the balance per year.
Front-load it
Because the saving comes from removing future interest, the same overpayment made earlier is worth more than one made later. An extra €100 in year 1 removes 29 years of compounding. The same €100 in year 25 removes five.
If your overpayment budget is limited, front-load it.
Run it on your own loan
The loan calculator shows the payoff time, the total interest and the interest saved for any extra amount, and it exports the full amortisation schedule so you can find the crossover month where principal overtakes interest.