Paying a mortgage loan every two weeks, instead of once per month, can be a big money-saver for homeowners, but only if it’s done right.
So why pay your mortgage bi-weekly instead of monthly? In a word, savings. Potentially big savings.
It’s not rocket science. When you pre-pay the principal on your mortgage loan, you knock down the total cost of your mortgage. The larger the pre-payments, the more you save. Plus, the sooner you begin to pay off your mortgage, the more you’ll save over the long term.
To illustrate, let’s look at some numbers:
We’ll create a scenario where you have the following mortgage terms:
- Mortgage principal balance = $150,000
- Mortgage term = 360 months
- Monthly principal and interest payment = $899.33
- Total interest over life of loan = $173,757
With a bi-weekly payment of $449.67, for example, you’ll reduce the total interest of your home loan to $135,294. Better yet, you’ll pay off your loan in 24 years instead of 30 years.