Making more frequent payments on your mortgage can greatly lower your interest and loan term. This is commonly referred to as making Accelerated Payments. Before changing your payment frequency check with your lender to ensure your payments will be posted immediately and not applied once a full monthly payment is received. Some lenders do not offer auto payment options for these methods either so you may have to do your payments over the phone or though the mail. In order to begin this process you will need to be one month ahead on your mortgage and as stated earlier the lender will need to post your payment immediately for this to work. The concept behind this payment method is that interest is accruing for a smaller period of time and therefor less interest is being paid. For all of the following examples we will be using a 30 year fixed mortgage of $100,000 at 5% interest. If this mortgage was kept full term while only making the minimum monthly payment, total interest would be over $92,000!
- Bi Weekly. This method not only cuts your payment in half it also pays an additional payment every year since there are 26 two week intervals. For example, if your payment is $538 you will now pay $269 every 2 weeks which adds up to $6994 annually instead of $6456 with a monthly payment plan. This method will give you a savings of almost $17,000 and cut almost 5 years off your loan.
- Weekly. While a weekly plan will divide your monthly payment into the equivalent of 14 semi monthly payments it will cut your interest and term even more. A $144 weekly payment will result in over $28,000 in interest saved and your term will be reduced 8 years!