SALT LAKE CITY — Making bi-weekly mortgage payments instead of monthly ones could help homeowners pay off their loans years earlier and save thousands of dollars in interest.
David Brindley, deputy editor of the AARP Bulletin, recommends this strategy as a smart way to make your money work harder. "A really smart way to make your money work harder for you is to pay half your monthly mortgage payment every 2 weeks - by the end of the year you will have made an additional monthly payment," Brindley said.
The math works out because there are 52 weeks in a year. Paying half your mortgage every two weeks results in 26 half-payments annually, which equals 13 full payments instead of the standard 12. “That's going to cut down the amount of time that you owe on the loan as well as the interest,” Brindley said.
For example, on a $500,000 30-year fixed-rate mortgage with approximately 7% interest, switching to bi-weekly payments could help you pay off the loan in about 22 years instead of 30. This translates to tens of thousands of dollars in overall savings.
If you're interested in this approach, I recommend consulting with a financial planner or your mortgage company to determine if it's right for your situation. This strategy works best if you plan to stay in your home long-term.
Also, be sure to check whether your mortgage has any penalties or fees for bi-weekly payments or early loan payoff before making the switch.
