Splitting mortgage payments could save homeowners thousands
Homeowners interested in saving thousands of dollars over the life of their mortgage can follow a simple trick: pay half a monthly mortgage bill every two weeks.
This isn't financial alchemy but simply a scheme that takes advantage of the calendar's 52 weeks. While most homeowners make 12 monthly payments a year, sending half every two weeks equals 26 payments a year, or 13 full payments.
That one extra monthly payment will yield big savings on a typical 30-year loan.
For instance, a homeowner with a $100,000 mortgage and a 5 percent rate will shell out more than $93,000 in interest over 30 years. By making one additional payment a year, that same homeowner will owe $76,000 interest — an 18 percent savings — and he will pay off his mortgage nearly five years faster, according to MortgageCalculator.org.
There is a potential problem with paying a mortgage every two weeks, warned Barry Zigas, director of housing policy for the Consumer Federation of America, a Washington advocacy group.
“A lot of lenders don't allow split payments,” he said.
Borrowers considering paying every two weeks should check with their lender first, he said. And while the stipulation is becoming much less common, borrowers also should make sure their mortgages don't have a penalty for paying off the loan early.
Even if split payments aren't allowed, most lenders let borrowers pay extra each month toward the principal of the mortgage, Zigas said.
A homeowner could divide one monthly payment by 12 and then add that amount to each month's bill, he said. Just make sure the lender knows the extra amount should be applied to principal, usually by checking a box on the payment slip.
“Consumers who want to do that should pay careful attention to how they do it,” he said.
Homeowners also have the option of setting aside a little each month and then making a 13th monthly payment each year.
Zigas also warned borrowers to watch out for companies that offer to help pay down a loan faster by collecting payments every two weeks.
Those companies charge a fee for the service that most people can simply do on their own, he said.
“A consumer needs to figure out if they're really saving money” by paying a fee, he said, “and ask themselves, ‘Can't I just do this myself?' ”
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or email@example.com.