I received a letter from my mortgage company earlier in the week that contained a fascinating proposal. If I were to take my monthly mortgage payment and pay half of it every two weeks, I could pay off my mortgage six years early, and save tens of thousands of dollars in interest.
By itself, this isn’t such a bad idea. The reason it works is that by paying every two weeks, you end up making 13 full mortgage payments a year, instead of 12. This accelerates your repayment of principal.
The idiotic part is that the bank wants me to pay $295 to enroll in the program and then pay $5.42 a month in participation fees. If I were to participate until my mortgage was repaid, that would be a total of a little over $1,800.
Okay, let me understand this….. the bank is asking me to pay $1,800 for something I CAN DO MYSELF!! This is truly remarkable and (in my opinion) a completely irresponsible promotion.
If you are interested in doing something like this, it is very simple to set up, especially if you have online banking. Just set up a recurring payment of 1/2 your mortgage payment every two weeks and you are done. 30 seconds of work and you’ve saved all that interest plus $1,800. By the way, there’s nothing magical about every two weeks, either…. you can make these extra payments whenever you want. The more principal you pay early, the less interest you’ll have down the road. To see how much you can save by prepaying, use this calculator.
Obviously, you’ll want to make sure that there are no prepayment penalties associated with your mortgage before embarking on an early repayment program like this.
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