Want to take years off of your mortgage payments?
Here’s a great strategy – making bi-weekly payments.
13 Months of Payments:
Paying your mortgage monthly means, of course, 12 payments a year. However, paying biweekly means you are paying half of your monthly payment every two weeks. This results in 26 payments, or 13 months, of payments, hence getting one additional payment every year!
This extra payment means your principal balance is paid off at a much faster pace and you’ll pay substantially less in total interest over the course of the mortgage.
For example, if you have a 30-year fixed loan of $250,000 at a 4% interest rate, making biweekly payments would save almost $30,000 in interest and five years off of the payment schedule! Even if you only stayed in this home for seven years, you’d still save thousands in interest, while paying off $10,000 more of the principal balance, resulting in having more of a down payment for your next home!
Beware of Payment Processing Companies:
Reach out to your mortgage company and inquire about biweekly payments. Some lenders do offer it, including automatic biweekly payment plans.
If your lender does not offer this, you may want to look into a payment processing company, however, these third-party services usually charge a one-time setup fee and may also add a small fee to each monthly payment and it may be very hard to get out of the contract with this company. Even worse, some of these services simply hold onto your second payment for two weeks and just make monthly payments on your behalf, nullifying the impact of one extra annual payment. So, if you get contacted by a company offering to save you thousands by handling your mortgage payments, be very weary!
How to Do it Yourself:
You can make this extra annual payment yourself. Here’s how:
Take your monthly mortgage payment and divide it by 12. Make an extra principal-only payment of that amount every month. You should confirm with your lender that there are no prepayment penalties on your loan and that the extra payments will be applied entirely to your loan’s principal rather than to principal plus interest. Contacting your lender may take a little work – but it is totally worth it!