Mortgage Payment Hacks That Can Save You Big Money
Like a lot of people, I struggle with my mortgage payments. According to the Federal Housing Finance Agency, the average mortgage loan amount is about $313,000. The interest rate for most mortgages is just under 5%. The average monthly mortgage payment is anywhere from $900 to $1,500. Most people then have to add on a few hundred extra dollars for additional costs of living, utilities and other monthly housing expenses. Paying down a mortgage is not easy.
No one pays for a mortgage in a vacuum separated from other housing costs. A mortgage payment is just one more payment to add to various other costs of living payments. Depending on the number of errands I run in a month, along with family responsibilities, I pay anywhere from $350 to $650 a month in gasoline. Never mind food, clothing, medical and other expenses.
I have been looking into financial hacks to help me better deal with my mortgage payments. They require financial sacrifice, patience and a long-term game plan style of strategic thinking. Then again, as a homeowner, you require such characteristics to make mortgage payments in the first place.
Biweekly Mortgage Payments
One way to reduce your mortgage interest payments and cut down years in repayment costs is to adopt a biweekly payment system. When you adopt a biweekly mortgage payment system, you are basically cutting in half your monthly mortgage payment responsibility. Instead of one payment a month, you make a half payment every two weeks.
When you use the biweekly mortgage payment system, you are essential for making an extra mortgage payment per year. There are 52 weeks in a year. With the biweekly mortgage payment system, this turns into 26 biweekly payments. Or the equivalent of 13 monthly mortgage payments.
Imagine that you have a $250,000, 30-year fixed mortgage with a 4% interest rate. If you paid your mortgage payments in a bi-weekly fashion, you can pay off your 30-year mortgage in about 25 years. Also, shaving five years of payments off your 30-year mortgage means that you could save about $30,000 in interest payments.
This technique will probably be more beneficial for those with $250,000+ mortgages and interest rates over 5%. If your mortgage is $300,000+ and your interest rate is over 6%, for example, you could shave up to $59,000 in payments and about six years off the loan. How much you save will depend on your own circumstances and resolve to continue with such payments.
Results May Vary
Make sure that your mortgage lender is fully aware of your payment plan. They may just hold onto your halved payments until you pay in full and then add it to the principal. Also, beware of any mortgage payment facilitator companies who offer such services. You will end up paying someone else hundreds of dollars in fees to make calculations that you can just do yourself for free.
This is a plan that strategically pays off in the long term. It may only be practical if you have a mortgage in the $200,000 to $300,00 range. Remember, this is a strategy to lower to your interest payments and potentially shave off years of payments. It is important to do your own calculations and assess whether such a plan works for you.
Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business