Ever get those offers from your bank about a biweekly payment program and think, “Is this even worth it?” The math can seem daunting, but don’t worry—we’ve done the homework for you! If you’ve got a mortgage, you’ll want to stick around for this one. Let’s break it down!
What’s the Problem? 🤔
Most homeowners don’t realize that they pay the most interest on their mortgage in the first seven years. If you look at your mortgage statement, you’ll see a huge chunk of your payment goes towards interest, not the principal. Banks know most people sell their homes within seven years, so they front-load the interest to get their money first.
Biweekly Payments: What’s the Deal? 📅
Banks often offer a biweekly payment plan where you pay half of your monthly mortgage payment every two weeks. Here’s a quick math lesson:
- Monthly Payment: Let’s say your mortgage is $2,000 a month. That’s $24,000 a year.
- Biweekly Payment: Instead of $2,000 monthly, you pay $1,000 every two weeks. Since there are 52 weeks in a year, you end up making 26 payments, totaling $26,000.
That extra $2,000? It’s like making one extra monthly payment each year without feeling the pinch all at once! 🎉
Why This Matters 💡
By making that extra payment, more of your money goes towards the principal. Over time, this reduces the amount of interest you pay and shortens the life of your loan. You could cut six to eight years off a 30-year mortgage just by making these extra payments!
Why DIY is Better 🚀
Instead of opting for the bank’s biweekly payment plan, we want you manage the extra payments yourself. Meaning, you’ll pay an extra payment over the course of the year on your own terms. Why?
- Consistency: Doing it this way allows you to keep one consistent mortgage payment rather than trying to figure out when and how to make the months with three payments work.
- Flexibility: You control the timing and amount of extra payments.
- Savings: Avoid any fees the bank might charge for setting up a biweekly payment plan.
- Precision: Ensure extra payments are applied directly to the principal, not future interest.
Steps to Make It Happen 🚀
- Do the Math: You’ll want to take your mortgage payment and divide by 12. Add that amount to your current mortgage payment and that’s the number you need to hit to get in one full extra payment per year.
- Check Your Budget: Determine if you can afford the extra payments.
- Talk to Your Bank: Ensure any extra payments are applied to the principal, not future payments.
- Automate: Set it and forget it. Make these payments automatic so you don’t have to think about it every month.
Real Talk: Is It Worth It? 🤷♀️
Absolutely! If your budget allows, making extra payments is a smart move. You’ll save thousands in interest and pay off your mortgage faster.
Here’s a quick checklist to decide if it’s for you:
- Priority Check: List your financial goals. If paying off your mortgage faster is a top priority, go for it.
- Budget Review: Ensure you can handle the slightly higher payment without straining your finances.
- Free Money: Just like a 401K match, we’re always going to want to you take advantage of “free money” if your budget allows. This small hack might not be all that noticeable to you but it could save you tens of thousands of dollars in the long run.
Switching to budgeting extra payments might seem small, but it can lead to massive savings and financial freedom down the line. Remember, it’s all about making your money work smarter, not harder. You’ve got this! 🌟
Check out Bankrate’s Mortgage Calculator – Crunch the numbers for your specific mortgage.
257 | How to Pay Off Your Mortgage Early: Biweekly Payments Explained – Financial Coaching for Women: How To Budget, Manage Money, Pay Off Debt, Save Money, Paycheck Plans
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