This Mortgage Hack Will Save You Hundreds of Thousands of Dollars
Written by
Ashleigh Ray, AI Editor
Edited by
Ashleigh Ray
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Owning a home is part of the quintessential “American Dream,” but the associated mortgage can feel like a financial ball and chain, stretching over decades.
However, a simple yet effective mortgage hack–shifting from monthly to biweekly payments–can help you break free from interest payments years earlier and save you a significant amount of money.
Here’s how it works and why it might be the game-changer you need in managing your mortgage.
The Power of Biweekly Payments
Typically, homeowners make monthly mortgage payments. But if you switch to a biweekly payment schedule, you’ll make half of your monthly payment every two weeks.
This doesn’t sound like a significant change at first, but because there are 52 weeks in a year, you’ll make 26 half-payments–or 13 full payments–each year.
This means you’re essentially making one extra payment each year, directly reducing your mortgage principal faster and reducing the amount of interest you’ll pay over the life of the loan.
How It Translates to Savings
Consider John and Jane Doe, who have a $300,000, 30-year fixed mortgage with an interest rate of 4%. Under a standard monthly payment plan, they would pay approximately $1,432 each month. Over 30 years, they would pay a total of about $215,608 in interest.
However, if they choose the biweekly payment method, they pay $716 every two weeks. Not only will they pay off their mortgage roughly four years earlier, but they will also save about $47,000 in interest payments.
The Compounding Effect
The magic behind the biweekly payment strategy is in the compounding effect. By making payments more frequently and reducing the principal balance ahead of schedule, the interest, which is calculated on the remaining principal, is also reduced every two weeks instead of every month.
Over time, these small savings compound into thousands of dollars and shave years off your mortgage term.
Implementing This Strategy
If you’re considering this method, first check with your lender. Some lenders will offer biweekly payment plans but may charge for the service.
On the other hand, you can DIY a “biweekly payment plan.” Simply divide your monthly payment by 12 and add that amount to your monthly mortgage payment.
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This way, you’ll make the equivalent of one extra payment each year. Ensure these extra funds are directed toward your principal to effectively reduce the interest.
It’s Not For Everyone
While the biweekly payment method can be a financial boon for many, it’s not universally the best option.
For instance, if your mortgage has a particularly low-interest rate, it might be more beneficial to invest the extra money you would put toward biweekly payments into other ventures with higher returns.
Additionally, some lenders charge fees for setting up a biweekly payment plan or for processing extra payments, which could negate some of the savings.
Before making a switch, it’s crucial to do the math and consider your overall financial strategy.
For those focusing on high-interest debt repayment, building an emergency fund or investing in higher-return opportunities, the traditional monthly mortgage might still be the most suitable option.
The Takeaway
Switching to a biweekly payment schedule for your mortgage can be a powerful strategy to reduce your interest payments and pay off your home loan much sooner.
But like any financial strategy, it’s not one-size-fits-all. Evaluating your overall financial situation and goals is crucial before making a decision.
Still, for many, this simple mortgage hack could potentially lead to savings of thousands, if not hundreds of thousands of dollars, making that dream of owning your home outright come sooner than you ever imagined.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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