by Christy Bieber | Sept. 4, 2020
Many or all of the products here are from our partners. We may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
Want to save thousands on your mortgage? This simple hack makes it effortless.
Most homeowners need a mortgage to buy a home, but the interest costs associated with borrowing so much money for such a long time really add up. In fact, with the average mortgage debt per borrower coming in at $202,284 in 2019, a borrower with a 30-year mortgage at a 3.25% interest rate ends up paying around $114,643 in interest costs over the life of the loan.
The good news is that there's a small change that could make a big difference in your total costs: Switch to making half your mortgage payment every two weeks, instead of paying the whole thing once a month.
"Paying your mortgage bi-weekly is one of the simplest tricks to secure big interest savings," according to Nathan Hamilton, director and industry analyst at The Ascent.
Get free access to the select products we use to help us conquer our money goals. These fully-vetted picks could be the solution to help increase your credit score, to invest more profitably, to build an emergency fund, and much more.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.
Mortgage payments are due once a month, but most people get paid biweekly. If you divide your payment in half and pay that half every other week, you'll make 26 half-payments per year. Some quick math will tell you that's 13 months worth of full payments made over a 12-month period. That extra payment lowers your total interest costs and helps you become debt-free sooner.
"In fact, it's possible to save tens of thousands of dollars over the life of a 30-year mortgage by sneaking in the equivalent of an extra mortgage payment each year," Hamilton explained.
If you have an average-sized mortgage of around $202,284 at 3.25% for 30 years and you switch to making biweekly payments instead of monthly ones, you'd save around $16,483 in interest costs over the life of your loan. You'd also be done paying off your mortgage in around 26 years instead of 30 years, so you'd be debt-free four years ahead of schedule.
Of course, the specific amount you save depends on the size of your mortgage and your interest rate. You can use an online calculator to help you determine the impact of paying half your mortgage payment every two weeks instead of sending in one monthly check.
Some lenders offer a biweekly payment plan, so start by asking your lender if this is an option for you. If so, you can simply change to the new plan and start making payments every other week.
If your lender doesn't offer this, you may be able to manually make a payment for half the amount every two weeks via your lender's website. However, not all mortgage lenders are able to process payments this way (some won't accept payments for less than the full amount), and you need to make sure your lender applies the extra payments to reducing the principal of your loan.
You could also transfer half your mortgage payment amount into a specific bank account every two weeks when you get your paycheck. Then make your monthly payment out of that account each month, using the total balance that's built up that month. Over the course of a year, this effectively tacks on the same extra amount you'd make via paying half-payments every two weeks. Again, you'll need to let your lender know to apply any additional monies in your payment above what is due toward reducing your principal.
The savings that comes with biweekly payments can be substantial. For most people, it's not a financial hardship to simply pay half a mortgage payment with each paycheck. In fact, it could help make your household budgeting easier.
But you will be sending extra money to your mortgage company. There's an opportunity cost to doing that, since you can't use the money for anything else. If your mortgage is at a very low interest rate and you could make better use of the money elsewhere, you'll need to think carefully about whether the biweekly payment hack makes sense for you.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
The Ascent's in-house mortgages expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See The Ascent's full advertiser disclosure here.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.