Pay your mortgage off Faster!
This is one of those money hacks I love because you only have to make one small change, and it takes care of itself.
By moving to accelerated bi-weekly payments and bumping that payment by $25 each year, you can owe $21,582.13 less at the end of the 5 years, reduce your amortization by nearly 6 years, and save almost $2,000 in interest.
Let’s go through an example.
5 Year Fixed Mortgage with Monthly Payme
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Mortgage Amount: $400,000
Interest Rate: 3.5%
Amortization: 25 Years
Monthly Payment: $1,997.09
Over the 5 years, you will make 60 payments on your mortgage.
Total Interest Paid: $64,944.84
Total Principal Paid: $54,879.96
Mortgage Balance: $345,120.04
5 Year Fixed Mortgage with Bi-weekly Accelerated Payments
In this example, there would be an annual increase to the bi-weekly payment of $25.00 once per calendar year.
Mortgage Amount: $400,000
Interest Rate: 3.5%
Amortization: 19 Years, 1 Month
Bi-Weekly Accelerated Payment
- Year 1: $998.54
- Year 2: $1,023.54
- Year 3: $1,048.54
- Year 4: $1,073.54
- Year 5: $1,098.54
Over the 5 years, you will make 130 payments on your mortgage.
Total Interest Paid: $63,098.11
Total Principal Paid: $76,462.09
Mortgage Balance: $323,537.91
With this simple change, not only did you reduce your amortization from 25 years to 19.1 years, but you now owe $21,582.13 less on your mortgage than if you made monthly payments. You will only have 14.1 years left on your renewal!
You also paid $1,846.73 less in interest over the time period.
This is when I truly love math.
Every year, set yourself a reminder to up your payment by $25. Almost all lenders have super simple online platforms to make this change.
If you want to review your options give me a call 403.875.2969.