Many homeowners are eager to pay off or pay down their mortgages in order to save themselves money in interest charges. Many lenders have even anticipated this situation by offering buyers a bi-weekly payment program.
Most mortgages are paid once a month, making 12 payments every year. With a bi-weekly payment schedule, the monthly mortgage amount is split into two and paid every two weeks instead. Since there are 52 weeks in a year, this results in 26 half- payments annually, totaling 13 whole payments. This means borrowers basically pay one extra monthly mortgage payment each year.
Here’s how that plays out in dollars: Let’s say you have a $250,000 mortgage at 4%. On a traditional schedule, that would mean a monthly payment of $1,193.54. If you opted for a bi-weekly mortgage payment, you would pay $596.77 every two weeks. By choosing the bi-weekly schedule you would shave 4 years off the end of your mortgage loan and would save $28,048.15 in interest over the life of the loan.
In addition to the interest savings, making bi-weekly payments will help you to build equity in your home faster. So even if you had to sell your home before the end of the loan, you would still get all that extra money back in the form of equity and you will have saved yourself thousands of dollars in interest payments. You can check how your own loan details would change by trying our bi-weekly mortgage payment calculator below.
If this payment schedule sounds good to you, start by contacting your lender to see if a bi-weekly program is available. While it is a common program, some lenders do not allow you to change your payment timing after closing the loan.
There are definitely other ways to pay off your mortgage quickly and to save tons on interest. You could simply save up that extra months’ worth of payment and make it in a lump sum payment during the year to get similar benefits. You could also divide that one extra payment by 12 and add that much to your monthly mortgage payment. This helps because the extra portion will go towards the principal of the loan. And you can certainly throw even more at your mortgage if you have some sort of financial windfall during the year.
A quick work of caution: be sure to check ahead of time with our lender to make sure there are no prepayment penalties attached to your loan that would negate your savings. Also be sure to verify that any extra payments you make will be applied to the mortgage principal and not the interest.
Switching to a bi-weekly mortgage payment plan can save you tens of thousands of dollars over the course of your loan. It is not the only way to pay down the loan faster but it is one possible tool to help you build equity and reduce your interest costs.
To get more information, feel free to contact us by phone at 651-797-4090.