How much interest can you save with accelerated payments?
Taking on a mortgage can be a big task. You may have to borrow a lot of money from a bank or lender to complete the purchase. In exchange for the loan, you have to pay interest to the creditor. Interest rates are only a couple percent, but after a 30-year term, interest dues can really add up. Bi-weekly payments can reduce your mortgage term by many years to save you money on the interest. By adding your loan details to the system, you can view the difference in savings between frequencies. Try weekly, bi-weekly, or monthly payments. See the time you can take off your term and what you should know about bi-weekly mortgage payments here.
You can reduce the total interest on a loan with accelerated payments. Instead of paying your regular mortgage bill, you can increase the payments to your creditor. A bi-weekly payment structure requires half of your mortgage payment every two weeks. Since a month usually has more than four weeks (4.3 on average), you end up making one extra month of payments by the end of the year. You can actually take years off your loan with bi-weekly payments.
A 30-year term, paid bi-weekly, reduces to about 26 years. If that mortgage were for $200,000, at a 4.5% rate, you would end up saving over $28,000 in interest.
How can you make bi-weekly payments?
There are various ways to structure your accelerated payments. Sometimes your creditor may offer bi-weekly payment plans. Other times you might be required to do the billing through a third party. In either case, there would be additional charges for the new set up. If it is through a third party, there can be a monthly fee for the service too.
The company would also hold your money until they could make the full monthly payment. So you won’t see any impact on your principal for many months. Since your money is being held interest free and goes towards extra costs first, setting up a bi-weekly plan usually isn’t worth it. Once you agree to the program, you have to make the added payments until the loan is paid back entirely. There are penalties for missing advances and for getting out of the contract.
Luckily, you don’t need to have a bi-weekly plan to make accelerated loan payments. You can make the payments on your own accord and get better results.
Making bi-weekly payments without extra fees
By making the payments on your terms, you can skip excessive service fees. You could increase your monthly billing, or pay a more substantial portion every six to twelve months. Just make sure to write in the memo, apply to principle. The best part? You can go back to traditional monthly payments anytime you want.
Monthly: increasing your monthly billing is the easiest way to accelerate your payments. To do this, divide your monthly payment by twelve, and add that amount to each payment you make.
Let’s use a 30-year $200,000 mortgage, with 4.5% interest as an example. The monthly payments on the loan are $1,013.37. Divided by twelve that equals $84.45. That figure added to each monthly payment would be $1,097.82.
Semi-annually: another option is to make a more significant payment every six months. A bi-weekly billing cycle results in one extra payment per year. You could easily split that into two portions and make one payment every six months.
Using the same example above, let’s figure out how much a semi-annual payment would be. Half of the $1,013.37 monthly payment would be $506.69. $506.69 added to the monthly payment would be $1,520.06. So, to reduce your mortgage term by a few years, you could pay $1,520.06 twice a year.
Yearly: you could also make a one-time yearly payment to accelerate your mortgage. If you put 1/12 th of your mortgage payment into a savings account each month, by the end of the year, you will have saved an extra payment. Just double the amount on one of your checks. Depending on the return from the account, you could even make some interest.
Let’s use our $200,000 mortgage again as a final example. The $1013.37 monthly payment, doubled, equals $2,026.74. One yearly payment of $2,026.74 could save you almost $30,000 over the life of your mortgage.
Regardless of which method you choose, all formats will provide the same result. Following any of the frequencies can shorten a 30-year mortgage by four years. Instead of guessing what your payments might be, try out your loan details in the calculator.
What is this calculator for?
The bi-weekly payment calculator is designed to help you work through your mortgage obligations. It can show you the interest savings between different billing structures. Using this calculator you can try out weekly or bi-weekly payments for any loan amount and term length.
This tool can be useful for first-time homebuyers that want to find the best option for their mortgage loan. It can also be helpful for families with existing mortgages that are looking for ways to maximize their savings. Just add your remaining loan amount and term. If you remember your first payment but not your remaining balance, try our bi-weekly calculator for existing mortgages.
The calculator is very easy to use. You just have to provide some mortgage details to get an accurate result. Let’s review this together.
Step 1: On the first line of the calculator, please add your mortgage amount. This is the dollar amount of the loan you need to borrow. You can also use the remaining balance on your existing mortgage here. Use the arrow features or your keyboard to input this amount easily.
Step 2: Include the interest rate on your mortgage on the second line of the calculator.
Step 3: Select your payment frequency on line three. You can use the drop-down menu to select weekly or bi-weekly calculations.
Step 4: Finally, identify your mortgage term on the last line by using the menu selection. Choose any term between 1 and 40 years. You can use offers from different lenders or merely use the time remaining on your current mortgage.
Step 5: View your results.
Once you have added your information, you can scan some reports about your mortgage payment.
Immediately to the right of the inputs, there is a smart comparison of your payment options. Here you can view your accelerated payment versus your regular monthly payment. You can also see how much interest you will be paying in both scenarios. There is a smart prompt below the inputs about the difference in savings, so you don’t have to guess.
There are also two integrated reports you can view. The first tab is a line graph of your mortgage payoff. This chart tracks your loan with monthly payments in blue versus accelerated payments in green. With this map, you can view how much quicker your loan will be paid off with accelerated contributions. You can also hold your mouse over any point to get an exact reading of the balance at that instance.
The next tab, payoff schedule, provides an itemized summary of all your yearly loan payments. You can view the difference and track the advances until the mortgage loan is paid off. You can also highlight any row by selecting it.
With this info, you can make an informed decision about increasing your mortgage payments. You can estimate your savings and decide if a bi-weekly structure could fit within your budget. It can be as simple as spending one less evening dining out to save a small portion of your mortgage payment each month. These small monthly savings eventually add up and can save you thousands on interest payments.
Remember to bookmark the bi-weekly mortgage payment calculator. Save this tool to the home screen of your smartphone for quick access. You can return as your finances change or if you move into a new home. If you found this page useful, you can promote us on social media using the share feature.