Photo by Oleksandr P
If you have a 30-year fixed-rate mortgage, you’re locking yourself into three decades of monthly payments, with interest accruing the whole time. It’s understandable, then, that some homeowners would want to figure out hacks to pay off their mortgage faster. One big hack that millionaires reportedly use that anyone can also do is a biweekly payment schedule instead of a traditional monthly plan.
Making a payment to your mortgage every two weeks rather than once a month can potentially get your mortgage paid off years earlier, saving you a significant amount in interest payments.
A biweekly mortgage payment schedule could allow you to pay off your home as much as 6-8 years faster than if you pay monthly. Since there are 52 weeks in a year, if you’re paying the equivalent of half of a monthly payment every two weeks, that equals 26 half payments or 13 full payments each year. That means that you’re making one extra payment each year.
“If you can make additional payments early in the cycle, it’s like paying yourself back faster,” Bill Banfield, executive vice president of capital markets at Rocket Mortgage, told CBS News.
So, if you have a $500,000 30-year fixed-rate mortgage with an interest rate of 7.73 percent, switching from a monthly payment to a biweekly payment will lead to you paying off your entire mortgage in 22 years rather 30.
If you make biweekly payments, that extra annual payment goes entirely toward the principal, reducing the amount of money in the loan that accrues interest. As a result, you end up accruing less interest and owing less money to your lender overall. A borrower with a $500,000 30-year fixed-rate mortgage at 7.73 percent, for example, would save $220,848.07 in interest by switching to biweekly payments, according to Rocket Mortgage.
You can also make bi-weekly payments with an adjustable-rate mortgage (ARM). The only difference is that the payment amount will periodically change with adjustments in your mortgage rate. However, the extra payments you make each year in a bi-weekly schedule will still go toward the principal.
Photo by Oleksandr P: https://www.pexels.com/photo/person-with-keys-for-real-estate-7599735/
