Once you’re locked into a mortgage, it can seem like the only way you’ll ever reduce the amount you’ll pay in interest is to wait until rates are lower (or your credit is better) and refinance. But there is another way…
The secret to saving on mortgage interest is to pay your loan down faster. Obviously, if you can afford it, you could take a 15-year mortgage rather than a 30-year loan. But what if you can’t afford a larger mortgage payment?
Make bi-weekly mortgage payments.
Simply by making your mortgage payments every two weeks rather than once a month, you’ll make 13 payments on your loan rather than 12. It doesn’t seem like a lot, but, done consistently, you will pay off your mortgage in 24 years with bi-weekly payments rather than 30.
If you’re out shopping for a mortgage, beware of banks trying to charge you for the privilege of making bi-weekly payments. On most mortgages bi-weekly payments are perfectly acceptable; you just have to specify that the additional money each month is going to pay “principal only”.
If you find your bank does not provide a way to easily allocate your bi-weekly payments, simply deposit the payments into a designated savings or checking account and use the balance at the end of the month to pay your regular payment, and apply the additional funds to the principal of your loan.
What about prepayment penalties? Some mortgages do charge penalties if you try to pay early. Most, however, will not kick in unless you make a substantial lump sump payment towards your principal balance. Still, read your mortgage contract to ensure making bi-weekly payments will not negatively impact the interest rate or fees you pay.
Bi-weekly payments are an easy way to save thousands of dollars on your mortgage costs over the life of the loan. All it takes is a little discipline to allocate the additional money and stay on track with the bi-weekly payments!