I've recently bought a new home and someone told me that if you make half payments every two weeks instead of a monthly payment that your 30 year mortgage would take 23 years to pay off. I really dont see how this could be true but if anyone knows about this or other ways to save money please post. Thanks
I dont know the specifics but its due to the way interest is compounded. You can also pay more than you owe. That works well.
I think knocking 7 years off the loan is a bit exagerated. http://mortgage-x.com/library/bimonthly.htm The real savings is by paying 1/2 a payment every 2 weeks. This means you make 26 payments a year instead of 24. Over 30 years there is a substantial savings. If you borrow 75,000 for 30 years and make payments like you suggested you will save $491 in interest and pay off the loan 1 month early If you pay 1/2 the monthly amount every 2 weeks you will save 57,611 in interest and pay the house off in almost 7 years sooner. Before sending in 2 payments a month make sure that your bank will apply them mid-month --- they may not.
On a related note, With this months payment you could (if your mortgage allows it) prepay the principal of next month. The amount you pay each month is more, but you end up paying a LOT less interest and you get your house paid off faster. This is especially important during the early and mid years of your mortgage, when most of your payment goes to interest and only a little goes to principal. -- droxford
You do save due to compounding, however, to set this up, you need a bank that is willing to do it, usually for a fee... You could also pay more principal, but you have to note that when making a payment...
