Knock Nine Years Off Your Mortgage
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The following is from the Introduction to the forthcoming second edition of Mortgage Free!: Innovative Strategies for Debt-free Home Ownership by Rob Roy.
Maybe you decide that building a house is not for you. Well, here’s a tip, suggested by Bob Duquette of Adirondack Funding Services of Plattsburgh, New York, that can save you nine years of payments (and $41,500 in the example given) on a thirty-year mortgage, or two and one-half years on a fifteen-year loan. It’s something you can do right now, and it is practically painless. At least, you won’t notice the pain. This mathemagical strategy involves making biweekly mortgage payments instead of monthly payments. And the biweekly payments are exactly half of what you would pay by the month. There, isn’t that easy?
“But how can that save me time and money?” you ask. The trick is that you are making twenty-six half payments in a year instead of twelve full payments. This is like making an extra full payment a year. As we’ve already seen, prepayment of your mortgage is the best investment you can make. In 1995, the typical conversion cost of refinancing your mortgage along these lines was about $295. In an article by Joe LoTemplio (Plattsburgh Press-Republican, May 21, 1995), Duquette says that about three-quarters of the people who learn about the biweekly payment scheme go for it. He says, “The nice thing about it is that it doesn’t interrupt your cash flow and you don’t have to come up with that large amount once a month.”
Original Mortgage: $70,000 at 8.5%, 30 years, monthly payments of $688.24 (payments include $150 per month escrow for property taxes and insurance)
Loan Curtailment Strategy: convert to biweekly payments of $344.12
Interest on the original loan: $122,774
Interest if biweekly schedule is used: $81,268 ($41,506 saved!)
| Year End | Principal, Original | Principal, Biweekly |
|---|---|---|
| 2008 | $69,697 | $69,353 |
| 2009 | 69,141 | 68,081 |
| 2010 | 68,536 | 66,699 |
| 2011 | 67,877 | 65,195 |
| 2012 | 67,160 | 63,558 |
| 2013 | 66,380 | 61,776 |
| 2014 | 65,531 | 59,837 |
| 2015 | 64,607 | 57,727 |
| 2016 | 63,601 | 55,430 |
| 2017 | 62,506 | 52,586 |
| 2018 | 61,314 | 49,837 |
| 2019 | 60,018 | 46,843 |
| 2020 | 58,606 | 43,584 |
| 2021 | 57,070 | 40,037 |
| 2022 | 55,398 | 36,176 |
| 2023 | 53,578 | 31,974 |
| 2024 | 51,597 | 27,401 |
| 2025 | 49,441 | 22,423 |
| 2026 | 47,095 | 17,006 |
| 2027 | 44,541 | 11,109 |
| 2028 | 41,761 | 4,692 |
| 2029 | 38,736 | DEBT FREE! |
| 2030 | 35,443 | |
| 2031 | 31,860 | |
| 2032 | 27,959 | |
| 2033 | 23,714 | |
| 2034 | 19,093 | |
| 2035 | 14,065 | |
| 2036 | 8,591 | |
| 2037 | 2,634 |
In a slight departure from this strategy, a correspondent reported that after eighteen months of regular mortgage payments, he switched to bi-weekly payments and added an extra $50 towards the principal with each payment. He said, “It was very simple, effective and automatic, as the payments were pre-authorized.” He lopped a full thirteen years off his mortgage.
For more strategies to be mortgage-free, see Mortgage Free!: Innovative Strategies for Debt-free Home Ownership by Rob Roy.
July 14th, 2008 at 12:09 pm
This is a great tip. I’m going to start paying off my student loans this way. Nine years is no small potatoes.
July 14th, 2008 at 4:23 pm
I already pay my auto loan using this method. It’s easy using my bank’s web site’s automatic payments tool. I just set it to pay every two weeks when I get my biweekly paycheck.
August 25th, 2008 at 11:02 am
I tried doing this some time ago with my current mortgage lender, GMAC. They make this difficult because they leave payments in a suspense account, and you must interact to add additional principle to payments. If you don’t interact and ask them to apply additional principle, they leave the extra money in this suspense account.
To work around this, I opened an interest bearing account which I pay my mortgage from. I perform a similar bi-weekly deposit to this account, then I add extra principle to each payment to achieve similar results from the one recommended here. Works OK so far, except when I’m tempted to not pay the extra principle.
September 7th, 2008 at 8:38 pm
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November 20th, 2008 at 6:09 pm
This assumes you get paid biweekly.
Unfortunately, I get paid monthly so this method is no use to me.
December 1st, 2008 at 4:52 pm
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December 16th, 2008 at 10:05 am
Hi KEn:
Rob Roy, here, author of Mortgage Free.
In response to Take Years off your Mortgage, you say, “This assumes you get paid biweekly. Unfortunately, I get paid monthly so this method is no use to me.”
True, this may make it a little more difficult, but you can still do it with a little self-discipline or adjustment at the bank. Your paycheck is really independent of your mortgage payment. You can still make 26 bi-weekly payments per year, if you are diligent. If your paycheck is going in the bank and the bank is sending a monthly check to the mortgage company, you will have to ask the bank to make payments every two weeks, instead of once a month.
First, of course, you have to square this with the mortgagor. There could be a fee for refinancing in this way, as per the example, but it should be well worth it. Check it out.
Rob Roy
December 24th, 2008 at 11:01 pm
Just stopped by, nice blog!
April 20th, 2009 at 5:00 pm
[…] Knock Nine Years Off Your Mortgage […]
April 27th, 2009 at 10:03 am
[…] Knock Nine Years Off Your Mortgage […]
June 4th, 2009 at 9:32 am
This was a great help to me so thanks for the advice!