When you're looking at various mortgage types and rates, many people like the idea of paying off their home loan with a 15 year mortgage. But, they see the difference in payments and worry that they may not be able to stick to it. It's not an option if you take out a 15 year mortgage, the payment is what it is. There's another way to accelerate your mortgage payoff, and it's a lot less stressful.
If you make a payment every two weeks of half your mortgage monthly payment amount, it's a bi-weekly payment plan. Of course, this adds one payment in the course of a year, as you would make 26 payments of half the monthly payment. This comes to 13 monthly payments each year. This extra payment is one way in which you save interest and accelerate payoff, but there's another. You're paying partial payments more frequently, and this saves you interest computed on the remaining balance as well. How does this look in real dollars? A $200,000 mortgage at 6% for 30 years would work this way:
- Paying standard monthly payments would result in payoff in 30 years with total interest paid of $231,678 and average monthly interest paid of $644.
- Paying bi-weekly, you pay off the loan in 24 years, with total interest paid of $180,393 and average bi-weekly interest paid of $231.
- This is a savings of more than $50,000 in interest and payoff 6 years early.
You usually just can't start paying bi-weekly on a standard mortgage, instead needing to set this up with the lender. Their systems need to know it's coming that way. However, this may be the easiest and best way for you to save a lot of money and be mortgage-free sooner. Give us a call or an email and we can figure your savings with bi-weekly payments.