Bi-weekly Payments: The Secret to Paying Off Your Mortgage Early

Brent Pittman —  07/05/2014

Did you know there is a ‘secret’ way to pay off your mortgage early? No doubt you’ve heard ads on the radio willing to sell you this secret for only thousands of dollars.

Guess what? I like you, so I’ll tell you for free.

Pay Off Your Mortgage Early

Before you start paying extra on your mortgage, make sure you’ve 1) paid off all other consumer debt, 2) have at least a 3-6 month emergency fund, 3) begun investing in your retirement, and 4) saving for your children’s college

Yes, you do want to pay off your home early, this is a key to wealth building. You’ll loose your tax deduction, but it’s not worth staying in debt and paying interest to get a tax deduction.

If you have a paid for house, just think of what you can do with all that money! You can pay it off early with a simple little trick.

I’ll assume that you already have a fixed mortgage of 15 or 30 years that is around 25% of your take home pay.

Also, if you have an ARM and plan to stay in your home for another few years–Now is the time to refinance and get a lower %–even if you have to pay 1 or 2 points

Bi-weekly Payments

This is the ‘secret’ that you hear many ads on the radio about. They’ll try to sell you software that magically helps you pay off your mortgage early. Bi-weekly mortgage payments.

It’s not magic, it’s math. If you pay bi-weekly, you’ll end up making an extra payment per year and thus paying off your mortgage early. You’ll also be knocking out interest, so more money goes towards the principal balance.

You could end up paying a 30 year loan off  years faster with this method? Sounds crazy right? Let’s look at an example below. If you want to figure your own bi-weekly amortization schedule try bankrate.com.

Bi-weekly Payment 30 Year Mortgage Year Example

In our 30 year example at 5% you’d save $44.417.33 and end up paying off your mortgage about 4 years early.

Mortgage comparison

Monthly payment:

$1,342.05

Biweekly payment:

$671.03

Total interest:

$233,139.40

Total interest:

$188,722.13

Avg interest each month:

$647.61

Avg interest each biweekly period:

$241.33

 

 Tips for Setting Up a Bi-weekly Payment Schedule

  • Make sure you don’t have a penalty for paying off your mortgage early. If you do, you’ll have to crunch some numbers and see what your break even point is.
  • Be certain the extra payment goes to principal and not to future interest. Your goal is to take a chunk out the principal with this method. The banks want you to keep paying.
  • Check with your specific bank or lending agency to see if they use a 3rd party to administer their bi-weekly payments. There is sometimes a set-up fee to get on a bi-weekly schedule.
  • Monitor your mortgage to make sure they are applying your payments correctly.

Have you set up or thought about setting up a bi-weekly schedule? 

Photo Credit  j l t (Creative Commons)

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Brent Pittman

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Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.
  • rlerich

    This is a great concept! I have never concerned biweekly payments. And, if it really saves as much as you say here, it is definitely worth it. Why not make a payment with every paycheck? Thanks for sharing this useful information and I look forward to reading more!

  • Anne @ Money Propeller

    I’ve never worked with biweekly paycheques, so I have never done biweekly mortgage payments. We stuck to semi-monthly payments, but double our payments, so a similar, but different, result.

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