Who would of thought that making smaller more frequent payments could save you so much money? Fortunately we were turned on to bi-weekly mortgage payments almost immediately after closing on our home and have been hooked ever since.
Here’s how it works:
Traditionally most home owners pay their mortgage once per month. We will use an example of $1200/month.
Twelve full payments per year comes to a total of $14,400.
Instead of paying $1200 once a month (12 full payments), if you pay $600 every two weeks (bi-weekly) you are making 26 half payments.
26 divided by two equals 13 full payments ($15,600). At the end of the year you’ve made an entire extra mortgage payment ($1200) to go directly to the principal on your loan. You should definitely specify to whoever you pay your mortgage that you want it to go towards principal!
Just by doing this my wife and I will cut our mortgage down from 30 years to 25.1 years. That’s 5 years worth of interest payments we no longer have to make! Depending on the cost of your home that can be tens of thousands of dollars in savings! Combine this payment method with additional principal each payment and before you know if you’ve cut your mortgage down to 20 years or less and are saving 100k in interest!
FYI- this payment method can be applied to anything you are making monthly payments on! Cars and credit cards especially!