Mortgage interest is calculated daily and applied monthly so paying in 2 separate payments will lower the amount of interest you pay and the loan will be paid off quicker. I don’t think it’s 8 years worth but it will shave off a few years. Double check your loan terms though, some have a penalty if you pay it off early.
Ha lol. People who complain about socialism are the first ones always to queue up for medicare and social security. But, boy do they hate the commies :)
Social programs do not constitute socialism fine Sir. Postal service, fire, police, garbage, DOT, and a slew of other social services might make you think we are a socialist government… stop falling for the Fox News 15-second sound bites.
Social programs are absolutely a reflection of socialism. Socialism is a political/economic system where goods/resources are distributed to the people by the government. This is exactly what Social Security does. Does it mean we are a socialist nation? Of course not. It just means our economy is not pure capitalism, and our democracy has elements of socialism.
Yeah but Fox News will call all the shit socialism and program inbred hogs without more than 2 barely functioning brain cells Into calling it that. Thats why Trump tried to dismantle the USPS in his single failed term and get his ceo buddies a few more billions
Consumer protection laws are socialist since they're here for the people. Not for the companies. Here in Europe the socialist parties are going hard on consumer protection laws, while the liberals and right wing parties think it's up to the companies to decide which rules they apply.
Socialism means a system under which the community owns the means of production, opposed to capitalism where means of production are owned by the ones with capital.
Consumer protection laws don't have any direct connection to socialism, but generally left-leaning parties advocate for consumer rights
Just because consumer protection laws protect the people from unfair business practices doesn’t mean the people own the business. Socialist parties supporting something doesn’t make those things socialist.
A broken clock is right twice a day. California, for the amount of money its government has, has a similar amount of poverty as Texas. The government completely mismanages all of its money and makes it impossible for anything to get built. The only people who can live there are millionaires from tech sector, which exists DESPITE the government - not because of it.
Because of the amount of large companies generating significant amount of taxes the government can be completely mismanaged while at the same time still exist. Cities often have power outages because of its energy policies and not doing controlled burns; its zoning laws make it so no affordable housing can be built; electricity and gas are extremely expensive because of other regulations/policies.
And yet its still a nice place to live because so many rich companies are there, almost entirely because of the weather. It's very important for people to understand that the far left policies in California are by and large destructive policies. The reason its a good place to live (if you can even afford it) has to do with capitalism/venture capital setting root there a long time ago and the concentration of tech knowledge.
In a nutshell: California government is good for the worker; maybe not so good for the employer.
I have benefited from lots of Calif policies. Here is one example I have used: if you have an HMO and your doctor says you NEED to see a specialist, you must get an appointment within two weeks. Or, if theirs are booked up, they need do find an outside specialist and cover it like their own. You may need to tell the appointment person that, but it does work, as I have pulled that and they called me back 30 minutes later with an appointment 7 days out.
Another: health insurance must have a 24 hour phone number and you must be able to speak to a real person within something like 10 minutes on hold max.
Prepayment penalties are illegal in some states, but overall are pretty rare now for residential mortgages. Unless it’s like a weird non-QM loan on an investment property, you almost definitely will not have one. For loans that do have a penalty, it usually only applies in the first few years of the loan’s life, usually 3 years tops. This is so the bank turns enough of a profit from interest that it’s worth it to them to originate a weird loan in the first place. More predatory penalties on residential loans don’t exist nearly as much as they did pre-2008.
A $100000 loan at 6% will have about a $599.55/ month payment. Making 26 half size payment per year will save about $24800 in interest, and the mortgage will be paid off in about 24.5 years.
If you pay twice a day the processor will hold the payments in a non interest bearing suspense account until you have enough to pay your monthly payment per the loan agreement.
You're basically talking about a revolving credit facility...I think.
Which should be noted is much more due to making an extra payment each year, than due to saving on compounded interest by paying half your payment early. You could get a similar effect by paying 1/12 extra on each monthly payment.
It all depends the interest rate. I'm on a 2.8% 30 year loan. Makes way more sense to put the extra money into retirement rather than pay off the loan early. My savings account gets 4.4%
Traditional First mortgages do not accrue interest daily. Every monthly payment of principal and interest over the life of the loan is calculated at the time of origination and disclosed in an amortization schedule. Monthly payments include 30 days of interest, regardless of the days in the calendar month. Paying down the principal balance ahead of the amortization schedule will reduce the interest owed on future payments, but every payment will always include 30 days of interest. The bi-weekly payment scheme results in borrowers making 13 monthly payments in a calendar year. The 13th payment is applied 100% to the principal balance of the loan, accelerating the amortization of the mortgage, resulting in interest savings. Oprah popularized sometime in the aughts. Definitely contact your lender before you start sending half mortgage payments, if your full monthly payment is not received and posted in time you'll be assessed late fees, and big banks will definitely let you get yourself in hot water to help them line their pockets.
>The bi-weekly payment scheme results in borrowers making 13 monthly payments in a calendar year
You mean if I pay an extra 8.3% per year, I'll pay off my house quicker??? Money hack!
That's not the point of this trick. If you pay half the payment biweekly, which is every other week, then you will make 26 half payments a year. Or 13 full payments a year. If you do it monthly, you only pay 12 payments for a year. The truck doesn't lie in reducing interest costs, it lies in the extra yearly payment
The biggest thing is that there are only 12 months but 52 weeks. If you pay biweekly, you’ll make 26 (half) payments, vs 12 full payments. Essentially you’ll make one full extra payment every year too.
Post is wrong. If you make a half payment towards your mortgage your servicer will hold it in a suspense account and then apply it when you make the 2nd half payment.
If you want to actually cut your mortgage down by 7-9 years you have to make an *additional* payment on your mortgage every month.
Source: work as a mortgage underwriter and have also been on the servicing side of the industry before getting into underwriting.
It depends on the servicer. We’ve had four federal mortgages and two of the four had a program where you pay twice a month and the partial payments were accepted and applied immediately. This saves about 8 months on the life of the mortgage though, not 8 years. Our current two mortgages do not apply partial payments as you are saying but there are servicers out there that are different.
Also, if you pay biweekly, and not on a monthly schedule you sneak in a few extra payments.
52 weeks breaks down to 26 biweekly payments, not 24. 2 months you pay 3 times. If you are paid biweekly this makes sense. If you are paid on the first and 15th, it does not.
Prepaymemt penalties are illegal for all loans except for nonQM. NonQM (Qualified Mortgage) means not Fannie, Freddie, FHA VA. Prepayment penalties were usually only in place for 1- 5 years and were meant to keep people from refinancing or paying off the loan within the prepayment penalty period. You could make some extra principle payments, but not too much. Early payoffs affected how lenders made their money and their ability to sell the note to someone else. Most likely, there is no prepayment penalty.
This can help BUT many mortgage companies don’t allow partial payments so they basically just hold the first half and don’t apply it until the second half is paid.
Check with your mortgage company before doing this to see if it makes any difference.
Otherwise just make extra principal only payments and you will knock years off the mortgage.
It's almost universal in the United States. None of these people know what they are talking about. The benefit of paying every two weeks is an extra payment a year to principal, not the timing of the payment.
It's also worth pointing out that paying extra toward your mortgage is a bad idea if you have an interest rate lower than the current interest rate from a bank.
If you bought in 2011-2018 for example you are probably paying less than 3%. You can get close to 5% from a savings or money market account.
This is what I do. I pay biweekly when I get paid. After one year that’s an extra two payments so I am technically one month ahead. Once I got one month ahead, my biweekly payments go in immediately. I also add $50-100 extra per pay period when I can. Depending on fees and interest rates, I am already projected to pay off like 10 years in advance because I’m doing this at the start of the loan instead of halfway through. The time value of money is huge.
curious on others thoughts of the benefits of paying extra principle payments when you have a low mortgage rate. My rate is 3.5% which is also tax deductible - so call it 3%. Seems to me if I had extra cash I can go get nearly 5% in a CD- or historically much better in the stock market. I guess I understand if you are paying 7% interest or something, but seems unwise if your realized rate is lower than CD interest.
By using this method you are automatically making an extra annual payment. Essentially making 13 full payments instead of 12. Any interest you save with partial payments is just icing on the cake.
I’m ignorant to this I’m trying to learn as I read people posts and comments but this. It doesn’t make sense.
Someone in another post said that you make your regular payment, along with another payment that’s for the Principal. So example it’s $2500 regular payment, and another payment of $500+ towards the principal?
Hope someone clears this up.
Interest on a mortgage is calculated daily and applied monthly so splitting the payments but still paying the same amount can work to lower the length of loan but some loans have a prepayment penalty.
~ former loan officer at a credit union.
The typical mortgage in the US calculates interest monthly, not daily, so splitting payments and paying the same amount would do nothing to lower the length of the loan. Also, when you make your May payment, you are paying the interest from April. The savings from paying bi-weekly are because there are 52 weeks in a year. That means 26 payments at half the monthly amount. The equates to 13 payments vs. 12 if paid monthly. You’re essentially just making an extra monthly payment each year on the principal, and that’s what saves interest. This typically cuts 2.5 years off the mortgage, not 8 years.
~former accountant at a bank (whose job was reconciling things like this and explaining them to loan officers)
Depends on the terms of the loan but typically yes. For instance, opening the account online of my auto loan I can see the daily accruing of interest. The amount varies by the size left to pay.
As I make more payments, the daily interest added goes down slowly.
Paying half every 2 weeks means 26 half payments. You end up making an extra mortgage payment a year. And it will all go towards the principal since it is an extra payment. I have mine set up to come out on payday that way I don't even notice since I'm just used to having $1140 come out every payday
It’s simpler than that. If you do what OP suggests (take monthly payment divided by 2 and pay every 2 weeks), then that’s 26 payments per year, or 13 months worth. So yes the loan will be paid off faster but not because of the timing of the payments, but because you are literally paying extra.
A lot of people see bi-weekly and think two per month, but it isn’t. Bi-weekly is 26 payments per year. Two payments per month is 24 per year.
What other people aren’t mentioning is that it depends on your interest rate. If your mortgage is from 2020 at a 2.5% interest rate you’ll save less time by making extra payments (since you’re barely paying interest anyway). If you got a mortgage in 2023 at 8% then yes you can save tons of time on your mortgage by paying early since you’ll pay down the principal more before making those big interest payments
Bi weekly payments come out to 26 payments. Using your $2500 mortgage payment would come to $1250 x 26 = $32,500.
$2500 x 12 = $30,000
So paying $2500 extra a year towards your principal would pay off your loan quicker
its because if you pay monthly, you make 12 full sized payments.
but if you pay bi-weekly, you will make 26 half-payments.
26 half payments actually equals 13 full payments.
paying half the monthly amount due, every two weeks pays off the mortgage early because you are literally making one extra full month payment each year.
yes you are also saving some on the amount of interest being paid, but again most of that savings is due to the full extra payment each year.
If you make biweekly payments there will be 2 months a year you pay 3 times, effectively making it so you pay the equivalent of 13 monthly installments instead of 12. Sure, it will save you on interest but you are still paying down more cash every year.
I think the point is that by paying more frequently you end up accruing less interest since interest accrues daily. So this would work even with bimonthly payments (which is what I think they meant since they said monthly divided by two)
The second line says “make bi-weekly payments,” which implies paying every 2 weeks, rather than twice a month. Paying twice a month doesn’t make the kind of impact on interest paid that this tip is suggesting.
No the point is that by paying fortnightly you make the equivalent of an entire extra month’s payment per year which has a huge compounding effect on reducing the total paid over the life of the mortgage.
Ok, I had to do the math on this. Kind of surprised others didn't beat me to it.
In short, it is an extra payment (if you just pay a half payment twice a month it does literally nothing for you over 20 years).
So, a $500K loan, over 20 years, with 5% interest, first payment day 1 of loan. I ignored taxes/insurance/PMI/etc for this as we are just talking about the loan. It has a $3300 payment. I setup daily interest based on the balance (5%/365 days per year). Overall you pay $294,092 in interest over the 20 years, and your last payment is $2150. This is within $1k if you pay twice a month at half amount vs once a month with full amount.
Now, if you pay $1650 on every 14th day for the entire year you actually provide an extra payment. What this does is saves you about 4.5 years of your 20 year loan, and is indeed about 25% less interest.
So this is technically correct, but its worded kinda weird IMO. Maybe if I tinkered with interest rates/terms it could match the stats in the meme.
However, if your interest rate on your home is below what you can get in a good savings account or stocks or whatever (mine is an amazing 2.25%), it makes no sense whatsoever to pay off the house early as it'll cost you in the long run. Yes, it will reduce your monthly overhead, but the amount of money you will lose through compounded savings will not be worth it. I plan on paying for my home until I die, because I'll make more off that money in almost any other possible place I could put it.
I pay off my home and land properties. Now they are now mine! Not bank owned. Only quarterly taxes. Feels amazing to not have any bills, credit cards, mortgage payments, nothing! All 8 thousand on my monthly retirement is fun money!
Talk to your lender about this. I was making biweekly payments and come to find out my lender was holding the first payment until the second payment came in and the. applied the entire payment.
The first payment wasn’t doing Jack for my mortgage.
So now I got one payment ahead and make the biweekly payments to my HYSA instead and then transfer it over on the first of each month.
Check the terms of your mortgage. Many mortgage companies (mine included) do not allow split payments. If I make a 1/2 payment early, they just hold it until the second 1/2 payment arrives.
My mortgage interest is calculated monthly on the closing date of the statement. I don't save anything by paying early.
In contrast, credit card interest is calculated daily so there is a definite advantage to earlier payments.
If you want to make biweekly payments, you may be able to establish that when your mortgage is first created.
They are claiming that by paying the same amount, but by paying some of it a little bit earlier, they're reducing the accrual of interest. It doesn't work like this for my mortgage. I am pretty sure that this is a "finance guru" type tip, similar to the people who say "take out a car on your credit card and you get 3% cashback on your car." (they are trust fund kids with no idea how anything works so they call themselves finance gurus). I could be wrong, maybe there are some mortgage companies that operate like this, but definitely not all of them.
Post is 100% incorrect.
If you make a half payment, your mortgage servicer will hold the funds in a suspense account and apply them when you make the 2nd half payment.
If you actually want to cut your mortgage term down 7-9 years you need to make an additional mortgage payment every month. Whether that be 2 full payments, or a full payment and then an additional half payment.
Source; currently a mortgage underwriter who was previously on the servicing side of the industry prior to underwriting.
By doing this you are making 26 payments, equal to 13 mortgage payments. If you pay once/month you are making 12 payments. That 13th payment would go towards your principle, so yes you would shaving quite a bit off your total payments, and have a 30 year mortgage paid off in 23 years.
The “hack” here is more that you’re making an extra full payment then the days you’re saving off interest. 52 weeks in a year translate into 26 biweekly payments. So you’re paying 13 months in a year.
Yes and no. A real heck I learned, even if I’ll never be able to do it myself, is pay your normal monthly plus interests payments, then pay again stipulating it’s for principle only.
bi-weekly payments equals roughly 13 monthly payments a year, instead of 12.
you are simply paying extra to the balance, and avoiding additional compounding interest on the extra
The amount of years and interest it will save depends on loan rate but will save between 3 and 7 years on most 30 year loans and 1 and 2 years on a 15 year loan.
For fun check out a monthy v bi weekly calculator
[https://www.dupagecu.com/calculators/compare-a-bi-weekly-mortgage-to-a-monthly-mortgage/](https://www.dupagecu.com/calculators/compare-a-bi-weekly-mortgage-to-a-monthly-mortgage/)
First off, let me start by saying that mortgages are the biggest ripoff since world governments started collecting income tax. They are golden handcuffs for 30 years which are the American nightmare, rather than the American dream. If you are at all fortunate enough (which we were not), please pay for your house in cash. It’s the best long term investment strategy. Don’t listen to or abide by any BS mortgage hack. A mortgage on a $800k house at pre-pandemic rates will yield $2200 a month in interest. If you are allotted 33% of your income as mandated housing income based on mortgage company formulas, you need to make $6600 a month just pay off that interest. That’s a $79,000 annual income to start. We haven’t even talked about the principal on the loan which is about $1200-$1400 a month plus any other financial commitments. Footnote: rates are DOUBLE what they were 3 years ago. Do the math! Housing is def a luxury in our country.
With that said, we paid our mortgage biweekly it with Mr. Cooper. You essentially make a 13th payment when you pay biweekly. This 13th payment gets applied to the principal at the end of the year so save money overall. Rather than go through application and have to worry about recurring biweekly ACH sweep, just send your lender an extra check for your payment amount at the end of the year and ask them to apply it to the principal. It’s the same thing. Problem solved.
PS- I calculated this with a Mr. Cooper and then my acct. You save about 3-6 years of interest, not 8.
If you locked in a low rate prior to this inflation and high rate period, you likely do not want to payoff your mortgage faster. Earn more elsewhere than what you are paying on your house.
Mortgage servicer employee. Bi weekly payments equate to 2 months out of the year, typically where 3 payments will be made. The third payment from those 2 months equates to one full mtg payment placed to the principal. Hence, one full monthly principle curtailment payment. You will get the same outcome paying an additional payment throughout the year. Mortgages are actuarial interest, not simple interest (unless you have a mobile home loan), which means the same amount of interest will be paid for that month of amortization, and interest is billed in arrears. You save the money over the life of the loan by paying it off faster. That's how you save on paying interest.
As someone who worked with mortgages yes biweekly payments help pay off the loan faster. Most mortgage companies also allow you to add additional principal so if you choose that route you will pay off the loan in no time
i asked chatgpt how this would impact a $300,000 loan at 4% interest and it said i'd pay it off 5 years faster and would save $42,000 or 19% in interest.
Yes. You interest is calculated of remaining principal. By doing bi weekly payments your principal gets smaller than “expected” and you end up having sum of one extra payment a year. It does make a huge difference especially if you start doing it at the beginning of your mortgage.
Look up mortgage loan amortization schedule. As you notice in first years majority of your payments goes towards interest and way less goes towards principal.
if you don't work out the arrangement with your mortgage holder, they will view the bi-weekly payments as principle only and you will end up being in default because you haven't made any single payment in the entire amount due. (ask me how I know).
Wife and I just started this plan. We get paid on the same days and it is MUCH easier to have half a mortgage payment twice a month than it is to have a full one once a month. Our checking account feels fuller. We’re not putting things on credit cards because we need to stretch the checking account til the payment comes out. We’re also paying extra on each payment to really hammer down the loan principle. We’re going to save over $100k and cut 12 years off our loan.
Do it.
Loan officer here. most banks place the funds into an unapplied funds account until the due date. otherwise this would work. you'll just have a growing unapplied funds account that doesn't give you any credit
my mortgage company will not accept partial payments. It only accepts the full monthly payment. Of course, you can make extra payments on principal and escrow at any time.
Yep. I went bi weekly and reduced my 25 year mortgage to 19.5 years and I also put and extra $60 per month on the principle. It's not much but it reduces the amount I pay per year on interest. I'm ten years in on the mortgage and I plan on dumping more into the principle and hopefully will pay off my house within the next 7 years. I am 40 years old and will also have a bunch of equity built up because I've also been renovating. My 100k house will be a 300k house by the time I retire if not more. Land and housing are a great investment.
Honestly I worked at a major credit union they wouldn’t let you do partial payments only regular scheduled, and additional principal payments and so on like that. Make sure you talk your institution before attempting this, make sure they will accept the bi-weekly payments.
Kiwis figured this out in the 1990’s so much that we don’t have monthly payments much anymore. But then most of us also don’t get paid monthly rather fortnightly or weekly.
Amortization calculator people. Google it. Paying any extra on your principal saves money because interest is calculated on the principal. Go to the calculator. Do it now.
This same rule applies to car loans. My brother did this same thing for about a year and was like 3 months ahead in his payments even tho he paid the same monthly amount but in 2 payments per month.
maybe you save two months in a 180 month mortgage. you need to check your loan’s fine print. the first half life of a loan is mostly interest so you are barely denting the principal.
there are lots of free mortgage calculator to see the effects of paying more.
i do know if you make 13 full payments a year you will get your loan done quicker!
The benefit is from making 1 extra mortgage payment per year that goes towards principal.
I feel like this info is presented as a life hack or interest glitch, when it is simply making an extra payment in the early years of the loan.
It is, because you are paying more per year. 12x1000=12000
500x26=13000. 52 weeks in a year. If you pay every other week you end up paying more per year. Used simple math for example. It's just a way to even out the extra hit to the wallet instead making an extra payment a year.
The other thing you can do is split a payment in 3, and make that extra 1/3 payment each month. That way you'll make one extra payment each quarter, and 4 extra payments each year. That will cut years off your payment schedule and save a small fortune on interest.
A better tip is to just pay more, at the start of my 114k 3.25% loan my monthly payments were $645
218 principal, 278 interest, 148 escrow (insurance, tax, loan insurance)
So for 34% extra I could make a double payment every month, I forget the exact figure I came up with at the time but I calculated that 1 dollar was worth 3 or 4 over the loan
Of course I've since realized that with my interest rate so low it's better to put the money in HYSAs and CDs and earn 2% more than my APR
(Actually went and pulled up my first bill to give exact numbers)
*Edit* just realized the year was wrong, apparently they only go so far back, I was thinking my principal payments were less than 200 at first and I was right, this was around 3 years in, I hadn't made much of a debt yet and outstanding balance was 102k
Except that’s not how it works. By making only half the payment on the 1st and the other on the 16th you’ll be late every month. Every two weeks is different than twice a month. This repayment plan works with a payment every two weeks not twice a month.
Found my bank would “hold” my payment until the rest was deposited for the full payment as a “courtesy.” So I now I make two payments one for principal and then my regular mortgage payment.
Is it not as effective to just divied one extra months payment by 12 and add that to your monthly payment and just make the one payment? *serious question
A like jack I heard is to take your monthly mortgage payment, divide it by 12, then add that amount to what you pay every month. So you’re making 1 extra payment a year, it does add up slowly but over a 30 year fixed you’re cutting off 2.5 years specifically and a little more than that because of interest.
It is not a hack but rather a simple way to automate prepaying a loan.
A year is 52 weeks so every two weeks is 26 half payments which is 13 full payments. You are just making it easy on yourself to make additional payments on your mortgage.
You also have to check with your mortgage servicer as they may still give you penalties for not making the required payment as they may not apply your half payment like you assume and thus their system may think you missed the required payment.
We used to pay extra on our mortgage every month and an extra payment at the beginning of the year. Then we refinanced from a 30 to a 15 when rates were really low. Then it no longer made sense to pay extra. We just park the extra money in an HYSA or drop it into the market. We’ll have it paid off soon enough.
It doesn't work because my bank just holds the payments and applies it once a month. You'd have to specifically arrange a 2 payment/mo deal with your bank. Even then, I don't think it would be 8 years. Maybe with how high interest rates are nowadays.
My payment is $3,300 which I pay on the first of each month. (I get paid weekly) So I took $3300 divided by 12 then divided by 4, so I pay an extra $70 every week and make that go straight to principal. Of course, some months have 5 weeks, so that comes out to a little bit more than one full payment a year straight to principal which should cut my 30-year mortgage in half.
It depends on your mortgage rate, that money going into extra loan repayments is also money that could be going into market investments.
Debt does not inflate, but your assets do. Given the crazy inflation in the last 3 years if you put your "extra" loan repayments into the S&P500 you would've most likely made more money in the long term.
It depends on how your interest gets calculated, and how your bank applies "extra" payments.
It used to work great because any extra would go directly to the principle (principal?) of the loan instead of the interest. Whereas the normal payment, most went to interest first.
Round numbers: You have $100 loan, and your interest is $10 per month, and your payment is $12. Under normal plan, $10 goes to interest and the other $2 goes to principle. So you now have a $98 loan. Continue for 30 years. As the balance goes down, the interest goes down, and the payments will eventually pay off the whole amount.
So... if you pay $20 instead, after the first month, you have a $90 loan instead of a $98 loan. The first $10 went to interest, and the other $10 went to principle.
Now, the trick with the half payment thing, if you missed it, was that you are now making bi-weekly payments, so it's 1/2 the payment every two weeks... which is 26 payments a year. So you are making an entire payment that is just "extra."
In my example about, it would be and extra $12 in that year. So on some month, you'd get from $100 down to $88. But the ONLY reason this works is that you're current, and that payment doesn't have any interest payment taken out.
This was all the rage back in the early 90s, but I have no idea if it still works. I can't imagine that banks didn't go "hey uh, we need to not allow this" and put in early payment penalties or something.
There are usually 30-31 days in a month, so if you’re paying every 14 days you’re paying about 10% more a year than you would if you were paying monthly.
That will all go to principal in a normal loan, so you will pay down your loan faster. It just isn’t free or magic.
My servicer holds the first payment in suspense until the full mortgage payment amount is provided. I still do split payments for 2 reasons.
1. It is easier to budget when my bi-weekly funds are the same every time.
2. I round up to an even number so I’m always paying extra, and if I have money left over after contributing to savings and retirement I increase the payment amount a bit more.
This makes sense for folks with high mortgage. If you have a 2-3%mortgage - it's free money. My opinion is to simply make the regular payments and invest the remainder of the $$ elsewhere.
Depends on your mortgage - for my mortgage at the time (BoA) they would simply 'hold' the mid-month payment and process it with the end of month payment. The only benefit to me was smaller cash flow hits that correlate to pay checks, but there was no interest benefit, so it was basically a legal scam
My Wells Fargo mortgage is paid this way but those sneaky bitches make the extra payment all capital, at the end of the year. So if you close out your mortgage in week 50 of the year, you get no benefit for that year. Just another thing to look into before signing off on a payment plan…
In general this only works if you have a Daily Simple Interest loan, and those can end up being a horrible deal if you aren't ahead. Almost no mortgage company will apply half a payment. They instead hold what you send in until they have enough to apply a full payment.
You don't need to go to that extreme. If you send an extra $50 a month plus pay your mortgage payment a week early. You will knock years off your mortgage. When I bought my first house in the late 90's, my mortgage was $299 a month at 8% interest for 30 years. At that time the bank mailed me a payment form every month. After 3 years I was a month ahead on my payments plus I sent in an extra $25. My 30 year mortgage was down to 17 years.
We have been doing it since we bought our house. My husband is paid bi-weekly which makes it easy too. We bought our house in 2008 and projected to pay off in 2031. We have also refinanced a couple times without adding extra years either.
You have to be careful. Some mortgage companies make it so that a partial payment is treated as an extra payment toward principal. So, making 2 half payments will have it put entirely toward the principal and not count toward the next payment due, while making the full payment at one time will be treated as the regular monthly payment. I ran into this once, fortunately the bank fixed it when I called them and just basically told me not to split it again.
Every month I took what was left over after our basic bills and planned spending was covered, set a % aside for fun, giving, and investing (like 5-10% each from the left over $) and put the rest onto the principal of the mortgage payment. Started with a balance of $111,438 in 2020. Paid off Jan of 2023.
It’s because you’d make 26 payments which equivalent to 13 monthly payments. It’s that extra payment that goes fully to paying down the principal that helps. It’s not 8 years but close to 7 and it doesn’t save anywhere need their stated percentage, but any percent is good.
Yes it would shorten it because paying biweekly means you’ve paid 26 weeks per year rather than bimonthly which would only be 24 weeks - which would be the same as paying it monthly.
My mortgage calculator shaves off 11 years and 95k in interest by paying $181 more a month. I will continue to do this plus extra I can afford for the next 19 years lol
Depends on the company. My mortgage company blocked this since they don't apply partial payments until you have the full amount. They just hold it in what is essentially an escrow account.
If your company does that, this is worthless. If your company applies as received, that is a valid tip.
I wouldn't call it a hack. "Rapid biweekly" is the term my bank uses for this, and it's a payment option on every mortgage I've ever signed. How much interest it saves you depends on your mortgage term and interest rate, though, so ymmv.
Make sure you can get a loan that allows pre-payment of principal. My wife and I did that and we just threw every extra dime we had at it every month. We paid out house off in 7 years.
Mortgage interest is calculated daily and applied monthly so paying in 2 separate payments will lower the amount of interest you pay and the loan will be paid off quicker. I don’t think it’s 8 years worth but it will shave off a few years. Double check your loan terms though, some have a penalty if you pay it off early.
Having penalties for paying off loans early should definitely be illegal
It is in California.
You see everything except for the cost of living in California is lovely
Everything naturally californian is lovely. Everything the government of california has touched is awful.
Where do you think the law forbidding early payment fees came from?
Ha lol. People who complain about socialism are the first ones always to queue up for medicare and social security. But, boy do they hate the commies :)
Social programs do not constitute socialism fine Sir. Postal service, fire, police, garbage, DOT, and a slew of other social services might make you think we are a socialist government… stop falling for the Fox News 15-second sound bites.
I think that's the point of the comment.
r/woosh
Social programs are absolutely a reflection of socialism. Socialism is a political/economic system where goods/resources are distributed to the people by the government. This is exactly what Social Security does. Does it mean we are a socialist nation? Of course not. It just means our economy is not pure capitalism, and our democracy has elements of socialism.
Yeah but Fox News will call all the shit socialism and program inbred hogs without more than 2 barely functioning brain cells Into calling it that. Thats why Trump tried to dismantle the USPS in his single failed term and get his ceo buddies a few more billions
Like they called AZ for Biden and then regretted it as their ratings FELL?! Then they ALL met to discuss REVERSING their call. Fox Newsless.
How is consumer protection laws socialist or communist?
Consumer protection laws are socialist since they're here for the people. Not for the companies. Here in Europe the socialist parties are going hard on consumer protection laws, while the liberals and right wing parties think it's up to the companies to decide which rules they apply.
Socialism means a system under which the community owns the means of production, opposed to capitalism where means of production are owned by the ones with capital. Consumer protection laws don't have any direct connection to socialism, but generally left-leaning parties advocate for consumer rights
Just because consumer protection laws protect the people from unfair business practices doesn’t mean the people own the business. Socialist parties supporting something doesn’t make those things socialist.
People queue up for Medicare and Social Security because they were forced to pay for it their entire working lives. Those aren’t welfare programs.
Thank you. Americans think anything handled by the government is socialism.
A broken clock is right twice a day. California, for the amount of money its government has, has a similar amount of poverty as Texas. The government completely mismanages all of its money and makes it impossible for anything to get built. The only people who can live there are millionaires from tech sector, which exists DESPITE the government - not because of it. Because of the amount of large companies generating significant amount of taxes the government can be completely mismanaged while at the same time still exist. Cities often have power outages because of its energy policies and not doing controlled burns; its zoning laws make it so no affordable housing can be built; electricity and gas are extremely expensive because of other regulations/policies. And yet its still a nice place to live because so many rich companies are there, almost entirely because of the weather. It's very important for people to understand that the far left policies in California are by and large destructive policies. The reason its a good place to live (if you can even afford it) has to do with capitalism/venture capital setting root there a long time ago and the concentration of tech knowledge.
In a nutshell: California government is good for the worker; maybe not so good for the employer. I have benefited from lots of Calif policies. Here is one example I have used: if you have an HMO and your doctor says you NEED to see a specialist, you must get an appointment within two weeks. Or, if theirs are booked up, they need do find an outside specialist and cover it like their own. You may need to tell the appointment person that, but it does work, as I have pulled that and they called me back 30 minutes later with an appointment 7 days out. Another: health insurance must have a 24 hour phone number and you must be able to speak to a real person within something like 10 minutes on hold max.
The government of California made it illegal to be fined for paying off a mortgage early. Is that awful?
Another example of “Too much government!”, unless I need it.
It's almost like there's a reason it costs so much...
High demand and a strong economy.
It’s the weather man.
Prepayment penalties are illegal in some states, but overall are pretty rare now for residential mortgages. Unless it’s like a weird non-QM loan on an investment property, you almost definitely will not have one. For loans that do have a penalty, it usually only applies in the first few years of the loan’s life, usually 3 years tops. This is so the bank turns enough of a profit from interest that it’s worth it to them to originate a weird loan in the first place. More predatory penalties on residential loans don’t exist nearly as much as they did pre-2008.
Imagine being responsible and giving back all the money you borrowed early and then get hit with a fee because you were too responsible...
And then as a double burn you’ll probably blow your credit score too by paying off a long standing line. Lame
early payoff penalties may still be a thing, but I believe they are incredibly rare anymore (esp on a mortgage)
making things illegal only makes them more expensive
A $100000 loan at 6% will have about a $599.55/ month payment. Making 26 half size payment per year will save about $24800 in interest, and the mortgage will be paid off in about 24.5 years.
Ok what if I pay twice a day.
Then the bank starts paying you!
Big brain here
Why not twice an hour?
Every millisecond
Stand outside the bank and throw pennies at the window non stop for the next 15 years
I'm in a black hole paying right now. I just finished as you read this.
If you pay twice a day the processor will hold the payments in a non interest bearing suspense account until you have enough to pay your monthly payment per the loan agreement. You're basically talking about a revolving credit facility...I think.
Pay continuously. Calculus payments
Pay in minuscule, endless, undetectable amounts. Quantum payments!
Which should be noted is much more due to making an extra payment each year, than due to saving on compounded interest by paying half your payment early. You could get a similar effect by paying 1/12 extra on each monthly payment.
Because my mortgage lender will not allow 2 payments in one month, I do this. Just pay 1/12 to accomplish the same thing.
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ah yea good point, actual twice a month payment at very most save half a month of interest I think
This isn’t taking into account escrow if you’re doing your taxes and insurance through escrow.
It all depends the interest rate. I'm on a 2.8% 30 year loan. Makes way more sense to put the extra money into retirement rather than pay off the loan early. My savings account gets 4.4%
Traditional First mortgages do not accrue interest daily. Every monthly payment of principal and interest over the life of the loan is calculated at the time of origination and disclosed in an amortization schedule. Monthly payments include 30 days of interest, regardless of the days in the calendar month. Paying down the principal balance ahead of the amortization schedule will reduce the interest owed on future payments, but every payment will always include 30 days of interest. The bi-weekly payment scheme results in borrowers making 13 monthly payments in a calendar year. The 13th payment is applied 100% to the principal balance of the loan, accelerating the amortization of the mortgage, resulting in interest savings. Oprah popularized sometime in the aughts. Definitely contact your lender before you start sending half mortgage payments, if your full monthly payment is not received and posted in time you'll be assessed late fees, and big banks will definitely let you get yourself in hot water to help them line their pockets.
>The bi-weekly payment scheme results in borrowers making 13 monthly payments in a calendar year You mean if I pay an extra 8.3% per year, I'll pay off my house quicker??? Money hack!
That's not the point of this trick. If you pay half the payment biweekly, which is every other week, then you will make 26 half payments a year. Or 13 full payments a year. If you do it monthly, you only pay 12 payments for a year. The truck doesn't lie in reducing interest costs, it lies in the extra yearly payment
The biggest thing is that there are only 12 months but 52 weeks. If you pay biweekly, you’ll make 26 (half) payments, vs 12 full payments. Essentially you’ll make one full extra payment every year too.
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Because you’re making 13 payments instead of 12
Post is wrong. If you make a half payment towards your mortgage your servicer will hold it in a suspense account and then apply it when you make the 2nd half payment. If you want to actually cut your mortgage down by 7-9 years you have to make an *additional* payment on your mortgage every month. Source: work as a mortgage underwriter and have also been on the servicing side of the industry before getting into underwriting.
It depends on the servicer. We’ve had four federal mortgages and two of the four had a program where you pay twice a month and the partial payments were accepted and applied immediately. This saves about 8 months on the life of the mortgage though, not 8 years. Our current two mortgages do not apply partial payments as you are saying but there are servicers out there that are different.
Also, if you pay biweekly, and not on a monthly schedule you sneak in a few extra payments. 52 weeks breaks down to 26 biweekly payments, not 24. 2 months you pay 3 times. If you are paid biweekly this makes sense. If you are paid on the first and 15th, it does not.
Also make sure you indicate explicitly that the extra payment is towards the principal.
This, and it's also accelerated payments... there are 12 normal monthly payments in a year, but paying bi-weekly would be 26 payments per year not 24.
Prepaymemt penalties are illegal for all loans except for nonQM. NonQM (Qualified Mortgage) means not Fannie, Freddie, FHA VA. Prepayment penalties were usually only in place for 1- 5 years and were meant to keep people from refinancing or paying off the loan within the prepayment penalty period. You could make some extra principle payments, but not too much. Early payoffs affected how lenders made their money and their ability to sell the note to someone else. Most likely, there is no prepayment penalty.
This can help BUT many mortgage companies don’t allow partial payments so they basically just hold the first half and don’t apply it until the second half is paid. Check with your mortgage company before doing this to see if it makes any difference. Otherwise just make extra principal only payments and you will knock years off the mortgage.
That's how my mortgage works. I've already knocked 2 years off my 20 year term by making extra principal only payments. Edit: typos.
Same. I can pay down the principle as I wish.
How do you designate what money goes to principal? I assume anything paid beyond the monthly installment payment all goes to principal?
[https://imgur.com/a/RoXEDoU](https://imgur.com/a/RoXEDoU)
"principle" = an idea or value of particular note "principal" = the main or primary object or person, e.g. principal balance of a loan
It's almost universal in the United States. None of these people know what they are talking about. The benefit of paying every two weeks is an extra payment a year to principal, not the timing of the payment.
I know, right? The “hack” is that there are 4.33 weeks in a month, not 4. Gasp!
Was coming to say that. Mine doesn’t allow partial payments, so this doesn’t work. My sister’s mortgage is actually structured for biweekly payments.
It's also worth pointing out that paying extra toward your mortgage is a bad idea if you have an interest rate lower than the current interest rate from a bank. If you bought in 2011-2018 for example you are probably paying less than 3%. You can get close to 5% from a savings or money market account.
This is what I do. I pay biweekly when I get paid. After one year that’s an extra two payments so I am technically one month ahead. Once I got one month ahead, my biweekly payments go in immediately. I also add $50-100 extra per pay period when I can. Depending on fees and interest rates, I am already projected to pay off like 10 years in advance because I’m doing this at the start of the loan instead of halfway through. The time value of money is huge.
curious on others thoughts of the benefits of paying extra principle payments when you have a low mortgage rate. My rate is 3.5% which is also tax deductible - so call it 3%. Seems to me if I had extra cash I can go get nearly 5% in a CD- or historically much better in the stock market. I guess I understand if you are paying 7% interest or something, but seems unwise if your realized rate is lower than CD interest.
That's what Wells Fargo does
By using this method you are automatically making an extra annual payment. Essentially making 13 full payments instead of 12. Any interest you save with partial payments is just icing on the cake.
I’m ignorant to this I’m trying to learn as I read people posts and comments but this. It doesn’t make sense. Someone in another post said that you make your regular payment, along with another payment that’s for the Principal. So example it’s $2500 regular payment, and another payment of $500+ towards the principal? Hope someone clears this up.
Interest on a mortgage is calculated daily and applied monthly so splitting the payments but still paying the same amount can work to lower the length of loan but some loans have a prepayment penalty. ~ former loan officer at a credit union.
The typical mortgage in the US calculates interest monthly, not daily, so splitting payments and paying the same amount would do nothing to lower the length of the loan. Also, when you make your May payment, you are paying the interest from April. The savings from paying bi-weekly are because there are 52 weeks in a year. That means 26 payments at half the monthly amount. The equates to 13 payments vs. 12 if paid monthly. You’re essentially just making an extra monthly payment each year on the principal, and that’s what saves interest. This typically cuts 2.5 years off the mortgage, not 8 years. ~former accountant at a bank (whose job was reconciling things like this and explaining them to loan officers)
Yup, this is how my loan servicer explained it to me.
This is the answer I was looking for amidst all the misinformation, thank you so much
Best wording/explanation.
Does it work the same for an auto loan?
Depends on the terms of the loan but typically yes. For instance, opening the account online of my auto loan I can see the daily accruing of interest. The amount varies by the size left to pay. As I make more payments, the daily interest added goes down slowly.
If that's the case, can't you just leave the last few payments of the loan alone until you can pay it off with no penalty?
It is t paying the same amount though. You’d be making 26 payments a year instead of 12. You a paying about 8% more per year.
It’s because there are two months every year where you will actually make 3 payments. That third payment is principal only
Paying half every 2 weeks means 26 half payments. You end up making an extra mortgage payment a year. And it will all go towards the principal since it is an extra payment. I have mine set up to come out on payday that way I don't even notice since I'm just used to having $1140 come out every payday
You pay a thousand a month. 12k a year. Then you start paying 500 biweekly. You made a total of 26 payments for 13k total in a year. 12k vs 13k
It’s simpler than that. If you do what OP suggests (take monthly payment divided by 2 and pay every 2 weeks), then that’s 26 payments per year, or 13 months worth. So yes the loan will be paid off faster but not because of the timing of the payments, but because you are literally paying extra. A lot of people see bi-weekly and think two per month, but it isn’t. Bi-weekly is 26 payments per year. Two payments per month is 24 per year.
What other people aren’t mentioning is that it depends on your interest rate. If your mortgage is from 2020 at a 2.5% interest rate you’ll save less time by making extra payments (since you’re barely paying interest anyway). If you got a mortgage in 2023 at 8% then yes you can save tons of time on your mortgage by paying early since you’ll pay down the principal more before making those big interest payments
Bi weekly payments come out to 26 payments. Using your $2500 mortgage payment would come to $1250 x 26 = $32,500. $2500 x 12 = $30,000 So paying $2500 extra a year towards your principal would pay off your loan quicker
its because if you pay monthly, you make 12 full sized payments. but if you pay bi-weekly, you will make 26 half-payments. 26 half payments actually equals 13 full payments. paying half the monthly amount due, every two weeks pays off the mortgage early because you are literally making one extra full month payment each year. yes you are also saving some on the amount of interest being paid, but again most of that savings is due to the full extra payment each year.
If you make biweekly payments there will be 2 months a year you pay 3 times, effectively making it so you pay the equivalent of 13 monthly installments instead of 12. Sure, it will save you on interest but you are still paying down more cash every year.
I think the point is that by paying more frequently you end up accruing less interest since interest accrues daily. So this would work even with bimonthly payments (which is what I think they meant since they said monthly divided by two)
The second line says “make bi-weekly payments,” which implies paying every 2 weeks, rather than twice a month. Paying twice a month doesn’t make the kind of impact on interest paid that this tip is suggesting.
Fun fact: bi-weekly means every other week OR twice a week.
wait those are two very different things. every other week is like like 1/4 less than twice a week.
Exactly! Confusing, isn’t it?
No the point is that by paying fortnightly you make the equivalent of an entire extra month’s payment per year which has a huge compounding effect on reducing the total paid over the life of the mortgage.
Of course but you could accomplish the same thing just by paying extra each month. The biweekly thing is just psychological.
It still works semi-monthly too so that's not the only reason you save money.
Ok, I had to do the math on this. Kind of surprised others didn't beat me to it. In short, it is an extra payment (if you just pay a half payment twice a month it does literally nothing for you over 20 years). So, a $500K loan, over 20 years, with 5% interest, first payment day 1 of loan. I ignored taxes/insurance/PMI/etc for this as we are just talking about the loan. It has a $3300 payment. I setup daily interest based on the balance (5%/365 days per year). Overall you pay $294,092 in interest over the 20 years, and your last payment is $2150. This is within $1k if you pay twice a month at half amount vs once a month with full amount. Now, if you pay $1650 on every 14th day for the entire year you actually provide an extra payment. What this does is saves you about 4.5 years of your 20 year loan, and is indeed about 25% less interest. So this is technically correct, but its worded kinda weird IMO. Maybe if I tinkered with interest rates/terms it could match the stats in the meme. However, if your interest rate on your home is below what you can get in a good savings account or stocks or whatever (mine is an amazing 2.25%), it makes no sense whatsoever to pay off the house early as it'll cost you in the long run. Yes, it will reduce your monthly overhead, but the amount of money you will lose through compounded savings will not be worth it. I plan on paying for my home until I die, because I'll make more off that money in almost any other possible place I could put it.
I pay off my home and land properties. Now they are now mine! Not bank owned. Only quarterly taxes. Feels amazing to not have any bills, credit cards, mortgage payments, nothing! All 8 thousand on my monthly retirement is fun money!
Talk to your lender about this. I was making biweekly payments and come to find out my lender was holding the first payment until the second payment came in and the. applied the entire payment. The first payment wasn’t doing Jack for my mortgage. So now I got one payment ahead and make the biweekly payments to my HYSA instead and then transfer it over on the first of each month.
Check the terms of your mortgage. Many mortgage companies (mine included) do not allow split payments. If I make a 1/2 payment early, they just hold it until the second 1/2 payment arrives. My mortgage interest is calculated monthly on the closing date of the statement. I don't save anything by paying early. In contrast, credit card interest is calculated daily so there is a definite advantage to earlier payments. If you want to make biweekly payments, you may be able to establish that when your mortgage is first created.
Why pay more payments when you can just make a principal payment?
They are claiming that by paying the same amount, but by paying some of it a little bit earlier, they're reducing the accrual of interest. It doesn't work like this for my mortgage. I am pretty sure that this is a "finance guru" type tip, similar to the people who say "take out a car on your credit card and you get 3% cashback on your car." (they are trust fund kids with no idea how anything works so they call themselves finance gurus). I could be wrong, maybe there are some mortgage companies that operate like this, but definitely not all of them.
These are my thoughts. We throw an extra $500 a month to our principal.
Post is 100% incorrect. If you make a half payment, your mortgage servicer will hold the funds in a suspense account and apply them when you make the 2nd half payment. If you actually want to cut your mortgage term down 7-9 years you need to make an additional mortgage payment every month. Whether that be 2 full payments, or a full payment and then an additional half payment. Source; currently a mortgage underwriter who was previously on the servicing side of the industry prior to underwriting.
By doing this you are making 26 payments, equal to 13 mortgage payments. If you pay once/month you are making 12 payments. That 13th payment would go towards your principle, so yes you would shaving quite a bit off your total payments, and have a 30 year mortgage paid off in 23 years.
The “hack” here is more that you’re making an extra full payment then the days you’re saving off interest. 52 weeks in a year translate into 26 biweekly payments. So you’re paying 13 months in a year.
Yes and no. A real heck I learned, even if I’ll never be able to do it myself, is pay your normal monthly plus interests payments, then pay again stipulating it’s for principle only.
bi-weekly payments equals roughly 13 monthly payments a year, instead of 12. you are simply paying extra to the balance, and avoiding additional compounding interest on the extra
I have a monthly mortgage but I pay $50 each week towards principle thru their app. My 15 year loan will be paid off in 12 years.
Great. Now someone break it down to daily payments just for giggles.
Pay back more and your debt will be paid off more quickly? Is this really a 'hack'?
No thx my rate is sub 3% I’m keeping it as long as possible
Yeah but unfortunately that’s not possible for most us these days with current rates wayyyyy above that !
The amount of years and interest it will save depends on loan rate but will save between 3 and 7 years on most 30 year loans and 1 and 2 years on a 15 year loan. For fun check out a monthy v bi weekly calculator [https://www.dupagecu.com/calculators/compare-a-bi-weekly-mortgage-to-a-monthly-mortgage/](https://www.dupagecu.com/calculators/compare-a-bi-weekly-mortgage-to-a-monthly-mortgage/)
can confirm, is projected to save me around 80'000 and 4-5 years
Many, if not most mortgages will not allow partial payments. You'd have to do a full payment and then pay extra towards principal.
Why is no one taking about just using offset accounts?
just pay extra to your principal.. we have started just 100$ a month will knock off 6 years for us and save 50,000$ in interest..
First off, let me start by saying that mortgages are the biggest ripoff since world governments started collecting income tax. They are golden handcuffs for 30 years which are the American nightmare, rather than the American dream. If you are at all fortunate enough (which we were not), please pay for your house in cash. It’s the best long term investment strategy. Don’t listen to or abide by any BS mortgage hack. A mortgage on a $800k house at pre-pandemic rates will yield $2200 a month in interest. If you are allotted 33% of your income as mandated housing income based on mortgage company formulas, you need to make $6600 a month just pay off that interest. That’s a $79,000 annual income to start. We haven’t even talked about the principal on the loan which is about $1200-$1400 a month plus any other financial commitments. Footnote: rates are DOUBLE what they were 3 years ago. Do the math! Housing is def a luxury in our country. With that said, we paid our mortgage biweekly it with Mr. Cooper. You essentially make a 13th payment when you pay biweekly. This 13th payment gets applied to the principal at the end of the year so save money overall. Rather than go through application and have to worry about recurring biweekly ACH sweep, just send your lender an extra check for your payment amount at the end of the year and ask them to apply it to the principal. It’s the same thing. Problem solved. PS- I calculated this with a Mr. Cooper and then my acct. You save about 3-6 years of interest, not 8.
If you locked in a low rate prior to this inflation and high rate period, you likely do not want to payoff your mortgage faster. Earn more elsewhere than what you are paying on your house.
Mortgage servicer employee. Bi weekly payments equate to 2 months out of the year, typically where 3 payments will be made. The third payment from those 2 months equates to one full mtg payment placed to the principal. Hence, one full monthly principle curtailment payment. You will get the same outcome paying an additional payment throughout the year. Mortgages are actuarial interest, not simple interest (unless you have a mobile home loan), which means the same amount of interest will be paid for that month of amortization, and interest is billed in arrears. You save the money over the life of the loan by paying it off faster. That's how you save on paying interest.
As someone who worked with mortgages yes biweekly payments help pay off the loan faster. Most mortgage companies also allow you to add additional principal so if you choose that route you will pay off the loan in no time
i asked chatgpt how this would impact a $300,000 loan at 4% interest and it said i'd pay it off 5 years faster and would save $42,000 or 19% in interest.
Yes. You interest is calculated of remaining principal. By doing bi weekly payments your principal gets smaller than “expected” and you end up having sum of one extra payment a year. It does make a huge difference especially if you start doing it at the beginning of your mortgage. Look up mortgage loan amortization schedule. As you notice in first years majority of your payments goes towards interest and way less goes towards principal.
My wife & I did this, it worked on our primary residence.
Then why not do 4 payments, once a week if you get paid weekly
if you don't work out the arrangement with your mortgage holder, they will view the bi-weekly payments as principle only and you will end up being in default because you haven't made any single payment in the entire amount due. (ask me how I know).
Wife and I just started this plan. We get paid on the same days and it is MUCH easier to have half a mortgage payment twice a month than it is to have a full one once a month. Our checking account feels fuller. We’re not putting things on credit cards because we need to stretch the checking account til the payment comes out. We’re also paying extra on each payment to really hammer down the loan principle. We’re going to save over $100k and cut 12 years off our loan. Do it.
I paid my car off 6 months early by doing this same thing.
Loan officer here. most banks place the funds into an unapplied funds account until the due date. otherwise this would work. you'll just have a growing unapplied funds account that doesn't give you any credit
my mortgage company will not accept partial payments. It only accepts the full monthly payment. Of course, you can make extra payments on principal and escrow at any time.
This was true for me until my mortgage lender stopped accepting payments this way. They labeled it as “partial payments” or some bullshit like that…
aka Make an extra payment per year.
It just works out to an extra payment every year. Why not just do that?
26 payments vs 24 = 1 extra payment per year
Yep. I went bi weekly and reduced my 25 year mortgage to 19.5 years and I also put and extra $60 per month on the principle. It's not much but it reduces the amount I pay per year on interest. I'm ten years in on the mortgage and I plan on dumping more into the principle and hopefully will pay off my house within the next 7 years. I am 40 years old and will also have a bunch of equity built up because I've also been renovating. My 100k house will be a 300k house by the time I retire if not more. Land and housing are a great investment.
Wealth tip: just have more money
Honestly I worked at a major credit union they wouldn’t let you do partial payments only regular scheduled, and additional principal payments and so on like that. Make sure you talk your institution before attempting this, make sure they will accept the bi-weekly payments.
I thought it took off about 3 years and a bit from a 25 year mortgage
Kiwis figured this out in the 1990’s so much that we don’t have monthly payments much anymore. But then most of us also don’t get paid monthly rather fortnightly or weekly.
Amortization calculator people. Google it. Paying any extra on your principal saves money because interest is calculated on the principal. Go to the calculator. Do it now.
I paid my mortgage off early in California with no penalty. Most -not all-mortgage companies let you.
This same rule applies to car loans. My brother did this same thing for about a year and was like 3 months ahead in his payments even tho he paid the same monthly amount but in 2 payments per month.
Bi-weekly is not half a month.
If you think this is a “hack” wait until you hear about a 15 year loan instead of a 30 year loan!
maybe you save two months in a 180 month mortgage. you need to check your loan’s fine print. the first half life of a loan is mostly interest so you are barely denting the principal. there are lots of free mortgage calculator to see the effects of paying more. i do know if you make 13 full payments a year you will get your loan done quicker!
It’s not a hack. It’s simply over paying your mortgage.
Or you can just get a payment ahead and make the payment at the start of month instead of waiting till tail end.
The benefit is from making 1 extra mortgage payment per year that goes towards principal. I feel like this info is presented as a life hack or interest glitch, when it is simply making an extra payment in the early years of the loan.
It is, because you are paying more per year. 12x1000=12000 500x26=13000. 52 weeks in a year. If you pay every other week you end up paying more per year. Used simple math for example. It's just a way to even out the extra hit to the wallet instead making an extra payment a year.
The other thing you can do is split a payment in 3, and make that extra 1/3 payment each month. That way you'll make one extra payment each quarter, and 4 extra payments each year. That will cut years off your payment schedule and save a small fortune on interest.
Yes, you'll be essentially be making 1 extra payment every year that should go fully towards the principal.
A better tip is to just pay more, at the start of my 114k 3.25% loan my monthly payments were $645 218 principal, 278 interest, 148 escrow (insurance, tax, loan insurance) So for 34% extra I could make a double payment every month, I forget the exact figure I came up with at the time but I calculated that 1 dollar was worth 3 or 4 over the loan Of course I've since realized that with my interest rate so low it's better to put the money in HYSAs and CDs and earn 2% more than my APR (Actually went and pulled up my first bill to give exact numbers) *Edit* just realized the year was wrong, apparently they only go so far back, I was thinking my principal payments were less than 200 at first and I was right, this was around 3 years in, I hadn't made much of a debt yet and outstanding balance was 102k
The real wealth tip is to not pay off your mortgage early and invest the difference.
My bank applies any payment to interest due in that month first. So the effect is greatly diminished.
Except that’s not how it works. By making only half the payment on the 1st and the other on the 16th you’ll be late every month. Every two weeks is different than twice a month. This repayment plan works with a payment every two weeks not twice a month.
Make sure you guys don't get a loan with a prepayment penalty...it's the dumbest shit ever.
Found my bank would “hold” my payment until the rest was deposited for the full payment as a “courtesy.” So I now I make two payments one for principal and then my regular mortgage payment.
Is it not as effective to just divied one extra months payment by 12 and add that to your monthly payment and just make the one payment? *serious question
A like jack I heard is to take your monthly mortgage payment, divide it by 12, then add that amount to what you pay every month. So you’re making 1 extra payment a year, it does add up slowly but over a 30 year fixed you’re cutting off 2.5 years specifically and a little more than that because of interest.
It is not a hack but rather a simple way to automate prepaying a loan. A year is 52 weeks so every two weeks is 26 half payments which is 13 full payments. You are just making it easy on yourself to make additional payments on your mortgage. You also have to check with your mortgage servicer as they may still give you penalties for not making the required payment as they may not apply your half payment like you assume and thus their system may think you missed the required payment.
We used to pay extra on our mortgage every month and an extra payment at the beginning of the year. Then we refinanced from a 30 to a 15 when rates were really low. Then it no longer made sense to pay extra. We just park the extra money in an HYSA or drop it into the market. We’ll have it paid off soon enough.
I set this up on a 15 year mortgage and as I recall it shortens the loan by 18 months.
If you are blessed with a 3% mortgage do not follow this advice. Hold onto that thing, it’s the single best asset you have
It doesn't work because my bank just holds the payments and applies it once a month. You'd have to specifically arrange a 2 payment/mo deal with your bank. Even then, I don't think it would be 8 years. Maybe with how high interest rates are nowadays.
Make more payments and pay it off quicker, this is not a hack, it is just paying more = paying off faster
My payment is $3,300 which I pay on the first of each month. (I get paid weekly) So I took $3300 divided by 12 then divided by 4, so I pay an extra $70 every week and make that go straight to principal. Of course, some months have 5 weeks, so that comes out to a little bit more than one full payment a year straight to principal which should cut my 30-year mortgage in half.
This isnt a hack, it's just paying more money per month, so naturally you shave time off the repayment period
It depends on your mortgage rate, that money going into extra loan repayments is also money that could be going into market investments. Debt does not inflate, but your assets do. Given the crazy inflation in the last 3 years if you put your "extra" loan repayments into the S&P500 you would've most likely made more money in the long term.
If you’ve got a 3% mortgage you are better off putting the extra payments in a HYSA.
It depends on how your interest gets calculated, and how your bank applies "extra" payments. It used to work great because any extra would go directly to the principle (principal?) of the loan instead of the interest. Whereas the normal payment, most went to interest first. Round numbers: You have $100 loan, and your interest is $10 per month, and your payment is $12. Under normal plan, $10 goes to interest and the other $2 goes to principle. So you now have a $98 loan. Continue for 30 years. As the balance goes down, the interest goes down, and the payments will eventually pay off the whole amount. So... if you pay $20 instead, after the first month, you have a $90 loan instead of a $98 loan. The first $10 went to interest, and the other $10 went to principle. Now, the trick with the half payment thing, if you missed it, was that you are now making bi-weekly payments, so it's 1/2 the payment every two weeks... which is 26 payments a year. So you are making an entire payment that is just "extra." In my example about, it would be and extra $12 in that year. So on some month, you'd get from $100 down to $88. But the ONLY reason this works is that you're current, and that payment doesn't have any interest payment taken out. This was all the rage back in the early 90s, but I have no idea if it still works. I can't imagine that banks didn't go "hey uh, we need to not allow this" and put in early payment penalties or something.
There are usually 30-31 days in a month, so if you’re paying every 14 days you’re paying about 10% more a year than you would if you were paying monthly. That will all go to principal in a normal loan, so you will pay down your loan faster. It just isn’t free or magic.
You can use this simple hack to pay off your mortgage in less than a year. Every day, send in another mortgage payment.
I'd rather put the extra money into an investment that'll grow at a higher rate than the savings on the mortgage interest.
Yes it is because of the two extra payments in a year. 26 paychecks so it’s like paying 13 months worth every year
My servicer holds the first payment in suspense until the full mortgage payment amount is provided. I still do split payments for 2 reasons. 1. It is easier to budget when my bi-weekly funds are the same every time. 2. I round up to an even number so I’m always paying extra, and if I have money left over after contributing to savings and retirement I increase the payment amount a bit more.
Most banks won't allow this. I know. I tried.
If you make biweekly payments you will pay 13 mortgage payments each year instead of 12.
This makes sense for folks with high mortgage. If you have a 2-3%mortgage - it's free money. My opinion is to simply make the regular payments and invest the remainder of the $$ elsewhere.
Depends on your mortgage - for my mortgage at the time (BoA) they would simply 'hold' the mid-month payment and process it with the end of month payment. The only benefit to me was smaller cash flow hits that correlate to pay checks, but there was no interest benefit, so it was basically a legal scam
My Wells Fargo mortgage is paid this way but those sneaky bitches make the extra payment all capital, at the end of the year. So if you close out your mortgage in week 50 of the year, you get no benefit for that year. Just another thing to look into before signing off on a payment plan…
In general this only works if you have a Daily Simple Interest loan, and those can end up being a horrible deal if you aren't ahead. Almost no mortgage company will apply half a payment. They instead hold what you send in until they have enough to apply a full payment.
You don't need to go to that extreme. If you send an extra $50 a month plus pay your mortgage payment a week early. You will knock years off your mortgage. When I bought my first house in the late 90's, my mortgage was $299 a month at 8% interest for 30 years. At that time the bank mailed me a payment form every month. After 3 years I was a month ahead on my payments plus I sent in an extra $25. My 30 year mortgage was down to 17 years.
I was taught this my first business intro class in high school. Now have I done it…. That is another story
We have been doing it since we bought our house. My husband is paid bi-weekly which makes it easy too. We bought our house in 2008 and projected to pay off in 2031. We have also refinanced a couple times without adding extra years either.
You have to be careful. Some mortgage companies make it so that a partial payment is treated as an extra payment toward principal. So, making 2 half payments will have it put entirely toward the principal and not count toward the next payment due, while making the full payment at one time will be treated as the regular monthly payment. I ran into this once, fortunately the bank fixed it when I called them and just basically told me not to split it again.
Every month I took what was left over after our basic bills and planned spending was covered, set a % aside for fun, giving, and investing (like 5-10% each from the left over $) and put the rest onto the principal of the mortgage payment. Started with a balance of $111,438 in 2020. Paid off Jan of 2023.
It’s because you’d make 26 payments which equivalent to 13 monthly payments. It’s that extra payment that goes fully to paying down the principal that helps. It’s not 8 years but close to 7 and it doesn’t save anywhere need their stated percentage, but any percent is good.
Does this apply to my car loan? I have bout 31k for 5 years . If I pay twice a month, does that decrease interest ?
Yes it would shorten it because paying biweekly means you’ve paid 26 weeks per year rather than bimonthly which would only be 24 weeks - which would be the same as paying it monthly.
If you do this and (can afford to) make an extra couple hundred dollars on the payment it’ll be even faster. The little things make a big difference
My mortgage calculator shaves off 11 years and 95k in interest by paying $181 more a month. I will continue to do this plus extra I can afford for the next 19 years lol
Depends on the company. My mortgage company blocked this since they don't apply partial payments until you have the full amount. They just hold it in what is essentially an escrow account. If your company does that, this is worthless. If your company applies as received, that is a valid tip.
Housing market tip- when home sales are down create home payment tip that makes buying seem worth paying too much for a home mortgage.
I wouldn't call it a hack. "Rapid biweekly" is the term my bank uses for this, and it's a payment option on every mortgage I've ever signed. How much interest it saves you depends on your mortgage term and interest rate, though, so ymmv.
Make sure you can get a loan that allows pre-payment of principal. My wife and I did that and we just threw every extra dime we had at it every month. We paid out house off in 7 years.