Most of us like to save money, so when 13News came across a social media post claiming to have a hack that could help you save money and time on your mortgage payments, we took a look.
INDIANAPOLIS — Most of us like to save money.
So when 13News saw a social media post claiming that a hack could help reduce the time and cost of paying your mortgage, we decided to take a look.
The post reads, “Divide your mortgage payment by two. Instead of waiting until the first of each month, make a payment every two weeks. This will shave eight years off the term of your loan and save you 23%-30% in interest.”
To find out if this statement is true, 13News reached out to Audrey McClelland, a loan officer with CrossCountry Mortgage Carmel.
“Certainly, making payments every two weeks will save you money over the life of the loan,” McClelland acknowledged.
Splitting your mortgage payment in half and paying it every two weeks amounts to about one extra payment per year, she said.
“A lot of people ask if they can make one extra payment instead, and the answer is yes. It will still shorten the term of your 30-year loan, but if you make payments every two weeks, you'll pay off the interest sooner,” McClellan explains.
Let’s take out a $475,000 loan at 7% interest for 30 years.
If you make one monthly mortgage payment of $3,160, the interest you pay over the life of the loan will be $662,667.
If you split those payments in half, paying $1,590 every two weeks, you'll pay nearly $493,000 in interest over the life of the loan, shortening the term to about 24 years.
This could amount to a savings of about $169,000, or about a 25% discount on interest, as claimed in the post.
It's also worth discussing this payment schedule with your lender.
Make sure your calculations match up with theirs, and double-check that there aren't any prepayment penalties on your loan type.