You could save thousands on your mortgage by making a simple change to the way you pay. In this article, we'll explore how switching to biweekly payments can be a game-changer to help you reach financial freedom faster.
Understanding Mortgage Basics
When you buy a house, your monthly payment includes the principal (the amount you borrowed) and the interest accrued (the cost of borrowing). In the early years of your mortgage, most of your payment goes toward interest because your principal balance is higher. Over time, as your mortgage balance gets lower, more of your payment goes toward the principal.
For example, a 30-year mortgage loan of $350,000 with an interest rate of 7.00% would have a monthly payment of approximately $2,329. In that first payment you make, roughly $2,042 would go toward interest costs, and $287 would go toward your principal balance.
After approximately 20 years, your principal and interest would break even, resulting in the amount of principal and interest you pay toward your mortgage to be equal.
By the end of your mortgage, you will gradually pay less in interest, with your last payment consisting of mainly your principal balance being paid off.
The Power of Biweekly Payments
Typically, people make monthly mortgage payments. Another option is to make biweekly payments. This means you'll pay half of your monthly payment every two weeks. You'll make 26 half-payments a year, which is equivalent to 13 total monthly payments.
This method is simple, and it can make a significant difference in helping you pay off debt.
Here's how:
Pay Down Your Principal
You'll reduce your principal faster by making one extra full payment each year for a total of 13 full payments instead of 12. You'll owe less on your mortgage each year since you're paying down your principal, which saves you money in the long run.
Spend Less in Interest
Remember that interest is calculated based on your outstanding balance. By reducing your principal more quickly, you'll pay less interest over the life of your loan.
Own Your Home Faster
Biweekly payments will shorten your total loan term. For example, a 30-year mortgage might be paid off in around 23 years with biweekly payments since you make an extra full payment yearly.
How Much Could You Save?
Let's say you have a 30-year mortgage with a loan amount of $350,000 and an annual interest rate of 7.00%.
With biweekly payments, you would pay $1,165 every two weeks instead of $2,329 monthly.
At the end of each year, you will have paid an extra $2,329 towards your mortgage, which is equal to one additional full payment.
Overall, you could save $119,496 in interest over the life of your loan, and you will own your home in 23.7 years rather than the scheduled 30 years.
See how much you could save on your mortgage with our free Biweekly Loan Payment Calculator. By choosing biweekly payments, reducing your principal balance, and paying less interest, you'll be on the fast track to owning your home outright and achieving financial freedom!