If your financial goals include paying down the balance of your mortgage as quickly as possible, there is a strategy you could use to speed up repayment and save thousands of dollars in the process. The method is very simple, involves no financial risk, and only requires a little discipline on your part.
The process is bi-weekly mortgage payments. Making bi-weekly mortgage payments sounds infinitely more complicated than it actually is. The only thing you do to take advantage of the savings is split your monthly mortgage payment in two; pay half of your mortgage payment every two weeks. It’s really easy to do, especially if you use online banking; simply schedule a payment to your mortgage lender whenever your paycheck comes in (assuming you get paid every two weeks) and viola, you will realize the savings bi-weekly mortgage payments has to offer.
Making bi-weekly payments every two weeks for an entire year results in an extra mortgage payment made directly to your mortgage loan’s principle balance. Because the amount of your interest payment due each month is calculated based on the remaining loan balance, the savings you realize has a compounding effect. Of course you don’t have to make bi-weekly payments to realize the savings. Making extra mortgage payments each year in a lump sum has the same effect.
You can learn more about your mortgage options, including common mistakes to avoid, by registering for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”