It works like this: Biweekly payments are equal to 13 monthly payments in a year while traditional monthly payments are equal to 12 payments each year. By paying an extra month every year, you're paying extra principal, which shaves six to eight years off the life of the loan over time.
But if you make biweekly mortgage payments, you will be making what equates to 13 monthly payments each year. Assuming a 6.5% interest rate and biweekly payments of $252, you would pay off your mortgage in a little over 24 years, or about six years early.
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
Look Into Refinancing
Refinancing your loan into one with a lower interest rate and/or a shorter term can help you pay off your mortgage faster. A shorter term usually comes with a lower interest rate, so you're saving on interest while also paying your mortgage off sooner than 30 years.
Making extra payments of $500/month could save you $60,798 in interest over the life of the loan.
Making additional principal payments reduces the amount of money you'll pay interest on – before it can accrue. This can knock years off your mortgage term and save you thousands of dollars.
This is equivalent to 12 slightly-higher monthly payments of $1,252.85 — but this small difference is enough to pay off your full debt in just 22 years and cost you only $129,712.85 in interest. In other words: two extra mortgage payments per year will save you eight years and $56,798.72 in interest.
If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
That one additional payment may help you pay off your mortgage as much as three to four years early—and if you make more than one additional payment per year, it's even faster! Not only do you save money on interest, but you'll be clear of having a mortgage payment at all much more quickly.
Paying twice the prescribed amount on a 30-year mortgage will cut the term to just shy of 11 years (130 payments). Does making two smaller twice monthly mortgage payments really pay it off significantly faster?
The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.
Most people with a 30-year mortgage won't keep the original loan for 30 years. In fact, the average mortgage length is under 10 years. That's not because these borrowers pay the loan off in record time.
Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.
As a general rule of thumb, making one extra mortgage payment per year at the start of your 30-year mortgage can shorten the term by approximately four to five years. You could potentially pay off the mortgage and own the home outright in 25 to 26 years instead of 30.
Before paying off a loan ahead of schedule, it's important to read the fine print. Based on the terms of your loan, you could be subject to a prepayment penalty for paying off your mortgage early. Typically, loans older than three years are not subject to this type of penalty.
This amortization schedule shows that paying an additional $300 each month will shorten the life of the mortgage from 30 years to about 21 years and 10 months (262 months vs. 360). It will also reduce the total amount of interest paid over the life of the mortgage by $209,948.
Many people choose to schedule their mortgage payment on the first of the month to coincide with their monthly paycheck. This can make it easier to budget and ensure that the payment is made on time.
When you pay an extra $100 on your monthly mortgage payment, that entire amount goes to principal. You'll reduce your total balance much more quickly when you make an extra payment that goes directly to repaying your balance. You could cut around four years off your repayment time with just an extra $100 per month.
The 10/15 rule
If you can manage to pay 10% of your mortgage payment every week (in addition to your usual monthly payment) and apply it to the principal of your loan, you can pay off your 30-year mortgage in just 15 years.
Make larger or more frequent payments
If you already have a mortgage, try making extra monthly payments. If you get paid twice per month, make a payment each time you get a paycheck. You could also make an extra lump-sum payment at the end of the year.