Easy ways to pay off your home mortgage faster

You may have seen “bi-weekly” mortgage payments advertised as a way to pay off your home faster, while paying less interest. How bi-weekly payments work and save you money isn’t always clear though, and it is important to understand what the process is before signing up with your lender.

Traditional mortgage payments are paid once a month, with part of your payment going to the principal amount and the rest to pay interest. When you first begin making payments more of your payment goes towards interest, but as you continue to pay more is shifted towards paying of the principal. This type of loan schedule is called amortization, and is how conventional home loans are set up.

With a bi-weekly mortgage payment program, you make a half payment every two weeks instead of 12 monthly payments each year. The result is that you end up making the equivalent of 13 monthly payments, but because your interest is set for 12 payments, the 13th payment goes directly to the loans principle.

This added amount each year speeds up your payoff time, which at today’s rates can reduce your loan term by up to five years and significantly reduce the amount that you pay in interest over the life of the loan. For example, a 30-year conventional mortgage for $300,000 at a 4 percent interest rate would be paid off in 25 years with $35,000 less interest paid using a bi-weekly payment schedule.

Another option is to manage paying extra into your mortgage yourself, rather than having your lender take care of the bi-weekly schedule. An easy way to do this is to add 1/12 of your regular mortgage payment to what you pay, essentially sending in an extra mortgage payment in each year.
For example, if your mortgage payment was $1,500 per month, you would add $125 to your payment, making it $1,625. This would have virtually the same effect as the biweekly mortgage payment plan, resulting in your home being paid off sooner with less interest paid.

A third option for many buyers to lower their interest payments and reduce the loan length is to refinance to a lower interest rate and put the monthly savings back into the mortgage. Using the same example as before, a $300,000 30-year mortgage refinanced with a rate drop of 1 percent would save you a little over $200 per month. By putting that savings back into your mortgage, it would allow you to pay off your loan in over 6 years less time, with interest savings of over $40,000.

You can learn more about ways to quickly pay off your home mortgage at Best Rate USA, with different refinance and mortgage programs available to suit your needs. With mortgage rates at nearly their lowest levels in two years, now is the best time to start saving money.