A Simple Way to Save Thousands of Dollars on Your Mortgage
The sooner you pay off your mortgage, the less interest you’ll owe and the more money you’ll save.
And there’s a super simple way to pay your mortgage off early without feeling cash-strapped: All you have to do is split your monthly payment into two, biweekly payments. It’ll save you thousands of dollars in interest payments — potentially even hundreds of thousands.
Anyone can do this. You don’t need a special mortgage. All you do is take the normal, say 30-year mortgage you have and instead of making the monthly payment the way you normally would, you split it down the middle and pay half every two weeks.
Say your mortgage payment is $2,000 a month. Under my biweekly plan, instead of sending a $2,000 check to your mortgage lender once every month, you would send a $1,000 check every two weeks.
Paying $1,000 every two weeks probably won’t feel any different than paying $2,000 once a month, but it’s hardly the same thing. Here’s why: When you make a payment every two weeks instead of once a month, you end up making one extra month’s worth of mortgage payments each year. By paying half of your monthly payment every two weeks, over the course of a year, you will make 26 half-payments. That’s the equivalent of 13 full payments, or one more payment than there are months in a year.
I crunched some numbers to show you just how effective this strategy can be: Paying off a $250,000, 30-year mortgage with an interest rate of 5% will cost you $233,139 in interest charges over the life of the loan. If you use a biweekly payment plan, though, the same mortgage will cost you a total of just $188,722 in interest. That’s a savings of more than $44,000!
How much you’ll save depends on your interest rate, principal and term, but it’ll be a significant chunk of money — and you can potentially be debt-free years ahead of schedule. The best part is, you’ll barely feel like you’re putting more money toward your mortgage.
How to set up a biweekly payment plan
Call up your lender and ask if they offer a biweekly mortgage payment plan or can refer you to a company that does. (Remember, you’re not requesting to refinance or change your mortgage — you’re asking to pay off your mortgage in a slightly different manner.)
You’ll want to ask your bank or mortgage company a few specific questions:
- Can I make extra payments on my mortgage without penalty? The answer should be yes. You should never sign up for a mortgage that charges a prepayment penalty.
- If I send in extra money beyond my required mortgage payment, what do I need to do to make sure the extra payment is used to pay down my principal? You have to ask this because some companies will hang on to the extra money you’re putting toward your mortgage and actually send it to your mortgage holder in a lump sum once a year or at the end of the month. That’s not what you want. You want a company that makes extra payments to your mortgage as soon as possible. This way your extra payments are paying down your mortgage faster.
After you set up your biweekly payment plan, go over your mortgage statement every month and check to see that the principal on your mortgage is in fact shrinking. If it’s not, then something is wrong.
Following this plan can help you become a debt-free homeowner significantly faster.
If you already own a home, switch to the biweekly payment plan today. If you’re still renting, check out the FREE First-Time Homebuyer Challenge that I created. It’s a brand-new program that teaches you the five critical steps of the home-buying process.
You’ll learn how to build an emergency account, get your credit score up (and protect it), qualify for a mortgage loan, tackle credit card debt and work with a realtor. It includes five days of video coaching, mentoring and great tools to help you take action. Click here to get access.