How Can I Payoff My Mortgage Quicker?
It’s quite easy actually as it requires a simple budgeting technique.
The majority of us budget on a monthly basis yet get paid on a biweekly basis. This means that we budget around 24 paychecks (2 per month), but we actually receive 26 paychecks each year (52 / 2 = 26).
Instead of applying this to your paychecks, apply it to your mortgage payment.
Instead of making a mortgage payment each month, make 2 half payments every 2 weeks. Though this sounds like the same thing, it’s not. One mortgage payment each month leads to 12 mortgage payments each year whereas biweekly payments lead to 26 half payments, or 13 full payments. You’re essentially making one extra payment each year.
Now, since mortgage interest is calculated monthly, you don’t actually have to make 2 payments in the same month. You can either:
- Make an extra payment at the end of each year
- Pay a little bit extra each month
Option 2 is recommendedand here’s how it’s done:
Divide your monthly mortgage by 12 and add that amount to your regular payment. The extra portion applied directly to principle will lead to one extra mortgage payment each year. This do-it-yourself approach will result in similar savings and you won’t be paying the bank unnecessary fees as an added bonus.
The Benefit of Biweekly Mortgage Payments
Let’s say you owe $500,000 @ 5% for 30 years. By paying $1758 every two weeks instead of $3517 every month, you will cut your term 5 years and save approximately $86,000.
Beware of Biweekly Mortgage Payment Services
Don’t EVER sign up for “mortgage acceleration programs” and beware of biweekly mortgage payment services. Most lenders offer a way to automatically draft these biweekly payments in order to payoff your mortgage quicker, but they do it at a cost. I’ve seen a range of $200-500 with an additional “per transaction charge.” Why would you pay for something you can easily do yourself?
Have you ever thought about making bi-weekly payments?