Using the trick of paying half of your house note every two weeks instead of making the whole payment once a month lets you pay off your mortgage years earlier than with a regular schedule, and reduces interest charges. You can do this for free, but a third-party service may keep you on track with this strategy.
Most mortgage experts refer to a bimonthly mortgage as a "mortgage accelerator program." Paying every 14 days rather than at the first or end of the month results in 13 regular payments in 12 months at the end of the year, because most months have more than 28 days. How much you save depends on your mortgage balance, monthly payment and interest rate. Because interest on a mortgage accrues every day, you reduce your daily balance sooner than with a monthly payment plan and thus save on interest charges. Not only do you save on interest, but you lower your balance too.
This plan only works if you earn enough each year to make that extra payment. You also need to factor in the lost tax deduction. The Internal Revenue Service lets you deduct mortgage interest payments. Paying early may not make financial sense, because other investments may earn a better return when you factor in your effective mortgage interest rate. Adhering to this tactic assumes you have the will to stick with the program.
Companies often advertise mortgage accelerator programs offering bimonthly mortgage payments, but these programs charge a fee. You do not need to pay a company to withdraw money from your bank account every two weeks. Most banks offer online bill payments, which you can use to set a payment to your mortgage provider every two weeks. A third-party mortgage accelerator program only helps when you really think you cannot stick with payments every two weeks.
Before starting any mortgage accelerator program, check with your bank to ensure that it accepts partial payments and your note does not come with a prepayment penalty. Lenders often charge a fee, usually equal to the interest you would pay over the normal life of the loan, for early payments. Also, request that extra payments go to the principal on the loan, not accrued interest.
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