By reducing the outstanding principal on a loan, more of each subsequent payment goes to principal and less to interest, reducing the loan balance. The more money you prepay, the greater the savings. Prepayments can start with your first mortgage payment or anytime during a loan's lifetime. No special arrangements need to be made. Simply notify your lender that the extra amount should go toward repayment of principal.
Some lenders use mortgage coupons with a box with adding extra amounts.
Others may require a note showing what the extra money is for. Then keep track of extra principal payments to double check the accuracy of the lender's year-end tax statement. Despite the benefits of principal prepayments, some experts suggest your money can do better elsewhere. This may or may not be true. Assuming no credit card debt and maximum contributions to retirement plans, the decision to prepay principal then comes down to a question of investment return.