The home mortgage is one of the most daunting debts in front of many people. For those of us following Dave Ramsey – we tackle it in Baby Step 6. But, there is one way to get a bit of a jump-start on it right from the start: Bi-Weekly Accelerated Mortgage Payments.
These are offered by many banks nowadays and as long as you can find a mortgage provider who offers the service for free then you can cut a 30-year mortgage down to 22-25 years.
We have been on the plan for almost 2 years through our mortgage provider Quicken Loans and so far have paid an extra $3022.02 to principal and saved over $7500 in interest, cutting out 9 payments so far!
How does this work?
Imagine you have a $2000 / month mortgage payment which would normally add up to $24,000 per year. Now, split that to $1000 every other week for 26 weeks. You’d pay $26,000 in a year which would essentially equate to a whole extra payment! Doing this saves you interest and payments over time because you are paying more frequently and interest has less time to accrue.
I make this easy on myself and have the payments aligned every other Friday on the same day as my paycheck. I hardly miss the extra payment spread out over the course of a year.
Bankrate has a calculator that you can use to check your savings.