How to Save Thousands on your Mortgage

How to Save Thousands on Your Mortgage

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So you bought a house. You love it. It’s great. Except for the 30 year mortgage you’re now saddled with. That’s not so great. You’re going to be paying on that mortgage for quite awhile. However, here’s the bright side: there is a simple trick that can help you save thousands on your mortgage in order to shorten the life of your loan.

How to Save Thousands on Your Mortgage Pin

Bi-weekly Payments

You can easily save thousands on your mortgage by making bi-weekly payments instead of monthly payments. Before you freak out, I’m not telling you to make a full mortgage payment every two weeks. You are going to pay the same amount on your mortgage each month, you are just breaking the amount due monthly into two payments. It goes something like this:

Say your monthly mortgage payment is $860.

Instead of paying this $860 all at once, you break it into payments of $430 paid every 2 weeks. One payment in the first two weeks of the month, and the second payment during the 3rd and 4th weeks of the month.

Obviously with these two payments combined you are still paying the same $860 as you would in a normal monthly payment. So how does this save you money and help you pay your mortgage off faster?

Here’s how:

52 weeks in a year divided by 2 equals 26 bi-weekly payments.

26 bi-weekly payments of $430 each equals $11,180.

With bi-weekly payments, you are paying $11,180 towards your mortgage each year.

Compared to monthly payments:

12 months in a year

12 monthly payments of $860 equals $10,320.

With monthly payments, you are paying $10,320 towards your mortgage each year.

That’s almost a $1000 difference each year! Multiplying that by 30 years, you would pay $30,000 more to your loan this way than you would making only monthly payments.

Which means…you will accrue much less interest on your loan and pay off your mortgage years sooner.

Note that bi-weekly payments (every 2 weeks) are different than half payments (twice a month.) This is because there are occasionally 5 weeks in a month instead of just 4. The Simple Dollar talks more about the differences between the bi-weekly and half payments and why bi-weekly payments save you more.

Using a simple mortgage calculator you can find out how bi-weekly payments can save you thousands on your mortgage.

*Here is an example:

Home value: $200,000

Loan amount: $180,000

Interest rate: 4%

Loan term: 30 years

Start date: August 2016

Monthly Payment: $859.35

(Monthly payment calculation does not include PMI, taxes, insurance, or HOA fees.)


Making monthly payments – $859.35

Annual payment amount: $10,312.17

Loan payoff date: July 2046

Total interest paid: $129,365.11

Making bi-weekly payments$429.68 (x2)

Annual payment amount: $11,171.68

Loan payoff date: June 2042

Total interest paid: $109,170.44

That’s a total interest savings of $20,194.67 by making bi-weekly payments!

Not to mention you would be paying off your mortgage 4 years sooner! What would you do with an extra $20k and 4 years of debt freedom???

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How to Get Started

First you need to talk with your lender and verify if they will allow you to make bi-weekly payments. Each lender will have their own policies and conditions concerning the home loans they offer. I would recommend asking if they allow bi-weekly payments before you get your loan if possible. Don’t lose sight of how these payments can help you save thousands on your mortgage in the long run!

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Once you set up automatic bi-weekly payments with your lender, you are good to go. Most people are paid bi-weekly, so I would suggest restructuring your budget so that you know what expenses are coming out of each paycheck. Jessi over at The Budget Mama talks about how budgeting in this way can save you money in other ways as well. Check it out here.

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Lastly, don’t forget to apply all of your debt reducing strategies to your mortgage! If you are serious about paying off your mortgage as quickly as possible and getting out of debt, make as many lump sum payments towards the mortgage principle as you can. The principal is the amount left on your loan that does not include interest. Paying down your principle is huge in reducing interest – as the amount of interest you have to pay is calculated based on the amount you have left to pay on your loan.

*Note that the numbers used in the examples are hypothetical and would change based on the amount of your loan, interest rates, and other fees lumped into your mortgage. The example is provided only to highlight the benefits of making bi-weekly payments. 

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