The Mortgage Hack That Can Save You Tens of Thousands of Dollars
Paying your monthly mortgage bill every month isn’t easy. With mortgages typically totaling thousands of dollars and lasting for decades, you’re stuck with that payment for a very long time, even if it’s more than you can afford.
But there’s a way you can pay off your mortgage sooner – and potentially save tens of thousands of dollars. It’s a simple hack that changes the way you make your loan payments.
What’s the Trick?
If you want to lower your mortgage payments and save money in the long run, you need to know about biweekly mortgage payments.
The typical home mortgage is paid once each month. But with biweekly payments, you can divide that larger payment in half and pay down your mortgage more frequently.
You’ll simply pay your loan every other week – or, twice each month instead of once. For example, if your monthly mortgage payment is $1,000, on a biweekly payment schedule you’ll pay $500 every two weeks. And this can be easier on your wallet, especially if you’re on a strict paycheck schedule.
Do Biweekly Mortgage Payments Really Save Money?
At first glance, it may not seem like biweekly mortgage payments actually save you any money. After all, you’re still paying the same total amount each month. It’s just divided into smaller, more frequent payments.
However, there is a way to save.
If you choose biweekly payments, there’s a little catch that lenders don’t tell you about. Not all months share the same number of days. And that means you’ll actually wind up paying down your mortgage faster.
Here’s how it breaks down. Because each month has a different number of days, you’ll end up making 26 payments on your mortgage in one year on a biweekly schedule. That adds up to 13 “full” payments – one more than you would actually pay on a regular payment schedule.
Essentially, a biweekly payment schedule lets you pay an extra month’s worth of your mortgage every year. And you won’t even notice when it happens because you’ve already budgeted for a new payment every other week.
And over time, that extra “month” of payment can make a huge difference in your bank account. That’s how you can save tens of thousands of dollars.
How Much Can You Save?
Here are the numbers on switching up your mortgage payment schedule.
If you have a $200,000 mortgage with a 30-year loan term and an interest rate of 4.125 percent, your monthly payment would be $775.44. You’d pay that amount 12 times per year, or a total of $9,305.28 in total. Over 30 years, you’ll pay an additional $119,158.25 in interest alone – bringing the total amount you spend on your mortgage to $325,158.25.
But with that same $200,000 mortgage, loan term, and interest rate on a biweekly payment schedule, the numbers are very different. Every two weeks, you’d pay $387.72, racking up a total of $10,080.72 over the course of each year. And you’d pay off your loan faster, paying it off completely in about 26 years instead of 30.
Paying your loan off 4 years sooner would mean you paid $100,077.57 in interest over the course of repayment. The total cost of your mortgage would be $306,077.57.
That means you’d save a shocking $19,000 by switching to biweekly payments.
Do Biweekly Payments Offer Any Other Benefits?
Helping you save tens of thousands of dollars over the lifetime of your mortgage is the best reason to switch to monthly payments. However, there are also other big perks to enjoy.
In addition to slashing your spending and taking years off your payment schedule, biweekly payments can also give you the following advantages and benefits.
- You’ll Build Equity Faster: As you pay down your mortgage, you build up your equity and begin to own more of your home. When you make biweekly payments, you’re paying down the loan faster and, in turn, you’re increasing your equity at a quicker rate – all because you aren’t paying as much in interest. The more you pay towards the principal of your loan, the more equity you’ll build.
- You’ll Pay Less Interest: As mentioned above, you’ll pay less interest over the lifetime of your mortgage on a biweekly payment plan. But you’ll also pay less interest each time you make a payment. Interest is accrued through each month, meaning more frequent payments allow you to pay down the principal without suffering higher interest percentages.
- You Can Drop Your PMI Sooner: If you didn’t put down a 20 percent down payment when you bought your home, you’re likely carrying PMI, or private mortgage insurance. And that can really increase your expenses. Once you have 20 percent equity in your home, you’re able to drop PMI – and if you’re making biweekly payments, you’ll be able to reach that amount of equity faster.
Switch to Biweekly Mortgage Payments Today
With huge financial benefits, biweekly mortgage payments are a simple hack that can seriously save you money. While the savings might not be immediate, they can add tens of thousands of dollars into your bank account over the lifetime of your mortgage.
If you’re wondering how you can switch from monthly payments to biweekly payments, you simply need to check with your lender. You can also refinance your mortgage if your lender doesn’t offer biweekly payment schedules. Just make sure to do your research first, comparing different lenders and options to make sure you’re able to maximize your savings and make the most out of your mortgage.