How To Pay Off Your Mortgage Quicker

by A Blinkin on April 3, 2012

I just told you that I Don’t Want To Be Debt Free and now I’m going to tell you how to pay off your mortgage quicker, how does that make sense? I do so because personal finance is personal. I would never give the same advice to everybody. Not everyone should invest their money when they could payoff debt, just as not everyone should worry about paying down their mortgage. That is why I present both sides. Your job is to compare the facts and make an informed decision.

How Can I Payoff My Mortgage Quicker?

It’s quite easy actually. It uses the same budgeting technique I wrote about in The Easiest Way To Save 3k.

The majority of us budget on a monthly basis. Although there’s nothing wrong with this commonality, our finances will greatly improve if we narrow our focus to bi-weekly budgeting.

Here’s why:

Instead of making a mortgage payment each month, you’re making 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 bi-weekly payments lead to 26 half payments, or 13 full payments. You’re essentially making one extra payment each year but in a way that doesn’t affect your monthly cash flow.

The Upside

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.

The Downside

Don’t EVER sign up for “mortgage acceleration programs” or anything that resembles this. Most lenders offer a way to automatically draft these bi-weekly 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? (Then again, why do I pay other people to make my food? hmm…)

The Alternative

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.

Have you ever thought about making bi-weekly payments?

Written by A Blinkin

A Blinkin

Hunter Kern, aka A. Blinkin, is the blogger behind Funancials. His experience in banking, lending, payments and investments has earned him the title of “Personal Finance Guru.” In addition to helping people with their finances, Hunter enjoys crunchy tacos, spending time with his wife and puppy, and writing in third person.

  • Elizabeth_SimpleFinance

    That’s like free money! I love this idea, and will definitely do that when we buy our next home!

    • Anonymous

      Elizabeth – just tried to leave a comment on your cell phone post and it gave me an error :( Not sure if I was the only one to receive this.

  • TB at BlueCollarWorkman

    Never thought about it, never even crossed my mind. Great post and great idea! Thanks!

    • Anonymous

      Thanks TB.

  • Rachel

    I don’t have a mortgage, but the same idea can work for paying off a credit card. I’m thinking I should start applying this concept. Thanks for the reminder!

    • Anonymous

      Absolutely! It can be used effectively for both saving and paying down debt (any debt).

  • Young Professional Finances

    Definitely a good idea. I was enrolled in one of those we’ll make the extra payment for you mortgage programs and then quit it because I realized it wasn’t helping at all – I could just do that. Stupid systems.

  • John@TheMoneyPrinciple

    Yes – do the sums. My father used to save up money and pay a lump off the mortgage just before the annual accounting date because in those days, things weren’t charged by the day. That way he paid off his only ever mortgage in 10 years. But it didn’t make him happier I think. You have to balance things out and remember that life is for living too!

  • Anonymous

    I am happy to report that we are closing on our refinance next week. We are taking the interest rate from 5.5% to 3.5%, and the mortgage from 30 years to 15 years. So, for an extra $219 per month, we will shave almost 15 years off of our mortgage and $103,000!!! very psyched. But that’s not all (hahaha–sounding like an infomercial); because we chose 3.5%, the lender is giving us a $3,000 credit towards our closing costs, which should cover the entire fees!!!! I am really excited about this.

    • Anonymous

      That sounds like a no-brainer deal. Congrats. At 3.5%, there really isn’t a reason to pay it off. Will your goal continue to be to pay it off asap or just ride it out for the next 15 years?

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  • James

    Good strategy. It is amazing how much interest you will save by paying one extra payment per year. I was ecstatic when I paid off my car because I was so sick of paying $300 per month. I can’t imagine the feeling of not having to pay the mortgage any more.

  • James

    Good strategy. It is amazing how much interest you will save by paying one extra payment per year. I was ecstatic when I paid off my car because I was so sick of paying $300 per month. I can’t imagine the feeling of not having to pay the mortgage any more.

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  • Anne @ Unique Gifter

    Wow, I had no idea that there were charges for some of the biweekly programs! I don’t know how our bank would treat changing the payment dates… but they are super flexible on changing the amounts and prepaying :-) We’re on track to pay off our mortgage before the term is up :-)

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