How to cut your mortgage in half, Part II

In the last post, I talked about the pros and cons of getting a 15 year mortgage in order to pay off your mortgage in, well, 15 years. You do have other options if you want to escape the mortgage noose a little early.

There are lots of companies out there that will try to lure you into a bi-weekly mortgage payment with promises of an early payoff almost as if by magic. You pay half of your mortgage payment every two weeks and presto-change-o suddenly you're paying off your house 6 or 7 years faster. What many people don't realize is that you're actually paying the equivalent of an extra payment every year. That time off your mortgage isn't magically happening at all, you're paying for it without feeling the sting. The kicker on all this is that they might charge you $200-400 up front to set it up for you. They might charge a fee of $5-10/month. And they might be holding half of your payment for a couple of weeks each month (and earning interest on your money). Or they might even be doing all three.

Here's the other kicker: you can get to the same result by adding a little bit to your regular monthly payment. Take your principal and interest payment (not including taxes and insurance), divide it by 12 and then add that amount to your regular payment. Doing that every month will shave almost 5 years off your repayment term. Depending on your mortgage servicer, you might have to write a separate check designated toward extra principal payments. Other servicers will have a spot on their payment coupons to write in any additional principle you want to pay.

If it works out better for your budgeting, set up a separate (no-fee!) checking account and deposit half of your monthly payment into that account every two weeks. Send a check to your mortgage company for the balance in the account at the end of the month. If you do it this way, it will actually end up taking more than 5 years off your repayment time because you'll be paying an extra full payment including taxes & insurance. You'll probably be looking at 6-8 years less depending on how much your taxes & insurance run each month.

This little strategy won't quite cut it in half, but with this good behaviour, it'll take some significant time off your sentence.

Stay tuned for the next thrilling installment of 'how to cut your mortgage in half.'

Originally posted at JuliaOdom.com