If you own a home, you’re likely familiar with the advice to pay more on your mortgage to pay it off faster. But what if you don’t have extra thousands to spare each month? There’s a simple alternative – making mortgage payments every two weeks. By paying half your mortgage payment each time, you’ll make 26 half payments in a year. This is achievable for most since many jobs pay every two weeks. As there are 52 weeks in a year, you’ll effectively make 13 full payments instead of the typical 12.
Making an Extra Mortgage Payment Can Save Thousands in Interest
Paying even a modest additional amount towards your mortgage can significantly reduce the loan term and save you money. Let’s consider a scenario where you purchased a $400,000 home in 2020 with a 4% interest rate. Assuming a 20% down payment of $80,000, your total loan balance would be $320,000.
If you stick to regular monthly payments, you’d pay off your loan in 30 years, totaling $229,982 in interest. However, making 13 payments a year would shorten the loan term to 25 years and 11 months, with only $193,382 paid in interest. This amounts to a substantial $36,600 in interest savings over the life of the loan.
Comparison of Monthly Mortgage Payments on a $320,000 Loan at 4% Interest:
| Payment frequency | Monthly payment | Total interest paid | Loan term | Interest savings |
|---|---|---|---|---|
| Every month | $1,528 | $229,982 | 30 Years | $0 |
| Every two weeks | $1,656 | $193,382 | 25 Years 11 Months | $36,600 |
For those with higher recent mortgage rates, the potential savings are even more significant. With the same assumptions on a $400,000 home and a 7% interest rate, making 13 payments a year could lead to savings of $113,003 in interest and early repayment in 23 years and 8 months.
Comparison of Monthly Mortgage Payments on a $320,000 Loan at 7% Interest:
| Payment frequency | Monthly payment | Total interest paid | Loan term | Interest savings |
|---|---|---|---|---|
| Every month | $2,129 | $446,428 | 30 Years | $0 |
| Every two weeks | $2,309 | $333,425 | 23 Years 8 Months | $113,003 |
If You Have a Low Interest Rate, Consider Other Investment Opportunities
For those with historically low-interest rates, such as rates from previous years, it may be more beneficial to explore investment options for that extra mortgage payment. High-yield savings accounts, certificates of deposit (CDs), or other investments could yield better returns than paying off a low-interest mortgage.
Consider Your Financial Situation When Deciding to Make Additional Mortgage Payments
If your mortgage interest rate is above 6% or 7%, making an extra mortgage payment each year is likely a prudent financial decision. By saving thousands in interest and paying off your mortgage more swiftly, you can secure your financial future. However, if you have a low mortgage rate, it might be more advantageous to invest the extra money wisely.
