If, for example, your mortgage payment is say, $1200 per month and you normally pay it on the 1st of the month, start paying $600 on the 1st of the month and then on the 15th of the month pay the additional $600.
You are not paying anymore than you would normally but because you are now paying it bi-monthly you save a lot of money towards the principle. You will end up paying off your mortgage 5 to 7 years ahead of time. Happy days to those that do this.
Most lenders will not accept two payments per month. This only works if your lender will accept the payments and post them to your account when received.
Do not buy a program to do this either. You will pay fees for the setup , etc. If you want to maximize your savings ther are better ways.
Set up a savings account, make your payments to your savings account, set up an automatic payment to your mortgage company from this account.
You will make interest on your savings account, have access to any extra paid, and pay no fees. This way you can pay your mortgage payment any way you desire. My suggestion is to pay 1/2 of your payment every two weeks or 1/4 every week, depending on how you get paid. This will make one extra payment of your mortgage every year, into your savings account. This payment can then be divided up as an extra principle paymeny monthly to your mortgage company or left in your savings account to grow.
I never recommend giving extra money to the mortgage company. If you need it, you must refinance or sell to get it back. In your savings account it is available if you have an emergency.
If you invest it, you may be able to have it grow, and not loose any of your tax deductions.
It is your money. Maximize your tax deductions and protect your interests. If you have the money, you can always pay it to your mortgage company if you wish.
This is the advice I give every client I talk to about mortgages, and I am a licensed REALTOR in Virginia, and have an INVESTMENT license as well.
I live in Canada. Here it is a normal option for the bank to offer us the ability to do a bi-weekly mortage payment. It has shaved years off our mortgage. BUT we cannot deduct the interest we get charged on our mortgage against our taxes like you can if you live in the U.S. Oh, well....
Besides bi-weekly payments, I think when the anniversary date of the loan comes around you are allowed to put whatever amount down on the principal without any other charges. This is a one time thing each year, but it will also cut down the principal and thereby save you money in interest payments.
By Vicky Saenz (Guest Post) 02/05/2005
I have a 15 year loan on my house I would like to shave more years off how do I do this? can I make an extra payment a year? or increase the monthly payment?