Paying Your Mortgage Bi-Weekly Can Save You Thousands
The first tip that most banks don’t want you know is that you can save thousands of dollars in interest if you pay your mortgage bi-weekly instead of monthly. Paying bi-weekly adds an extra payment each year, which helps reduce the amount of interest you ultimately pay, and helps pay down the home loan faster.
Here’s the rationale – there are 52 weeks in a year, 26 bi-weekly periods, and 12 months. If you pay twice a month, then you’ll make 24 payments during the year instead of 12. If you pay your mortgage bi-weekly, you’ll end up making 26 payments throughout the year, which adds one extra months’ mortgage payment each year. The extra money should be directly applied to your principal which helps reduce your interest over the life of the loan.
Make sure to contact your lender for more details and to find out if there are any pre-payment penalty fees. If you haven’t secured your loan terms with your loan officer, make sure to ask about this and get the best mortgage for you.
Here’s how it breaks out to see the real savings using a mortgage calculator and these details:
- Mortgage and loan amount: $200,000
- Interest rate: 5%
- Loan term: 30 years
- Property tax: 1.25%
- PMI: 0.5%
- Home insurance: $1,000/year