Payment Plus is a mortgage payment option that lets you pay more than your regular monthly amount without penalty
Payment Plus is a feature offered by some mortgage lenders that allows you to make extra payments toward your principal balance whenever you want, without triggering prepayment penalties or fees. The extra money goes directly to reducing what you owe, which shortens your loan term and cuts the total interest you pay over the life of the mortgage.
Not every lender offers this option, and the rules vary. Some lenders let you make unlimited extra payments; others cap how much you can pay down per year. Some charge a small fee for the service, while others include it at no cost. Before you commit to a mortgage, ask your lender whether Payment Plus or a similar prepayment option is available and what the terms are.
Key Takeaways
- Payment Plus lets you pay extra toward your principal without penalties, which reduces your total interest and shortens your loan.
- Not all lenders offer this feature, and terms differ — some allow unlimited extra payments while others set annual caps.
- Extra payments go directly to principal, not to future months' payments, so you must specify that when you send the money.
- Payment Plus works best if you have cash available now and want to reduce interest costs over time.
- Some mortgages have prepayment penalties that block extra payments; Payment Plus is only useful if your loan allows it.
How extra payments reduce your mortgage cost
When you make a regular monthly payment on a mortgage, part of it covers interest for that month and part covers principal. Early in the loan, most of your payment goes to interest. If you send extra money and it goes to principal, you shrink the balance that interest is calculated on for every month that follows.
For example, on a 30-year mortgage, paying an extra $100 per month can cut years off your loan and save tens of thousands in interest. The earlier in the loan you make extra payments, the more interest you save, because that smaller balance compounds over more years. Payment Plus makes this possible without the lender charging you a fee or penalty for paying off the loan faster.
When Payment Plus makes financial sense
Payment Plus is worth using if you have cash available and your mortgage interest rate is higher than what you could earn elsewhere. If your mortgage rate is 6% and you could only earn 1% in a savings account, paying down the mortgage saves you money. If your rate is 3% and you could earn 5% in a high-yield savings account or invest it, keeping the cash might be smarter.
Payment Plus also makes sense if you want to own your home free and clear by a specific date — like before retirement — and you have the income to support extra payments without straining your budget. It does not make sense if you are carrying high-interest credit card debt or have an emergency fund that is too small. Pay down the credit card first, and keep three to six months of expenses in savings before you start paying extra on your mortgage.
How to make a Payment Plus payment
The process depends on your lender. Some let you make extra payments online through your account portal; others require you to mail a check or call to arrange it. The critical step is telling your lender that the extra money should go to principal, not to next month's payment or into an escrow account.
When you send the payment, include a note or use your lender's online form to specify "principal only" or "prepayment." Without that instruction, the lender may apply the money to your next scheduled payment instead, which defeats the purpose. Call your lender's customer service line to confirm the process before you send the first extra payment, and ask whether there are any fees or restrictions on how often you can pay extra.
Prepayment penalties and when they block Payment Plus
Some mortgages, particularly older loans or those issued to borrowers with lower credit scores, include a prepayment penalty — a fee the lender charges if you pay off the loan early. These penalties typically last three to five years from the loan start date and can cost thousands of dollars. If your mortgage has a prepayment penalty, Payment Plus does not help you, because any extra payment would trigger the fee.
Check your loan documents — specifically the Promissory Note and the Truth in Lending Act (TILA) disclosure you received at closing — to see whether a prepayment penalty applies. If it does, the penalty period and the amount should be listed. Once the penalty period expires, you are free to make extra payments without cost. If you are considering a new mortgage, ask the lender upfront whether the loan has a prepayment penalty before you sign.
Payment Plus versus biweekly payment plans
Another way to pay down a mortgage faster is a biweekly payment plan, where you pay half your monthly payment every two weeks instead of paying the full amount once a month. Over a year, this results in 26 half-payments, which equals 13 full payments instead of 12. The extra payment goes to principal and shortens your loan.
Payment Plus is more flexible because you control when and how much you pay extra. Biweekly plans lock you into a fixed schedule and some lenders charge a setup or servicing fee. If your lender offers both, Payment Plus usually gives you more control. If your lender only offers biweekly payments and charges a fee, Payment Plus (if available) is often the better choice. Compare the costs and terms before you commit.
What happens to your payment schedule after Payment Plus payments
When you make an extra principal payment, your regular monthly payment amount does not change — you still owe the same amount each month. What changes is the total number of months you will be paying. If you pay an extra $200 per month on a 30-year mortgage, you might pay it off in 25 years instead, but your monthly payment stays the same.
Some lenders offer the option to recalculate your monthly payment after you have paid extra, which would lower your payment and extend your payoff date back out. This defeats the purpose of Payment Plus. If your lender offers this, make sure you understand the terms and do not accidentally agree to it. The goal of Payment Plus is to shorten the loan, not to lower the payment.
Frequently Asked Questions
Does Payment Plus work with adjustable-rate mortgages?
Yes, Payment Plus works the same way on an ARM as on a fixed-rate mortgage — extra payments go to principal and reduce your balance. The advantage is the same: less interest over time. However, if your ARM rate adjusts upward, your regular monthly payment will increase, which may limit how much extra you can afford to pay.
Can I use Payment Plus if I have an FHA or VA loan?
Most FHA and VA loans allow extra payments without penalty. Check your loan documents or call your lender to confirm. Some servicers charge a small fee to process extra payments, so ask about that too. If your loan has a prepayment penalty (rare but possible), Payment Plus would not help until the penalty period ends.
What if I make a Payment Plus payment and then lose my job?
The extra payment is permanent — you cannot get that money back. The lender will not refund it or apply it to future payments. This is why Payment Plus only makes sense if you have an emergency fund in place and your income is stable. If you are worried about job security, keep extra cash in savings instead of paying it toward your mortgage.
Does Payment Plus hurt my credit score?
No. Paying extra on your mortgage does not lower your credit score. It may slightly improve your score over time because it lowers your debt-to-income ratio and shows you are managing debt responsibly. The score impact is small, but it is never negative.
Can I make Payment Plus payments on a loan I am refinancing?
Once you refinance, you have a new loan with new terms. Any extra payments on the old loan are finished. On the new loan, Payment Plus works the same way — if the new lender offers it and your new loan does not have a prepayment penalty, you can make extra payments. Ask about this when you are comparing refinance offers.