Did you know, one extra mortgage payment each year can save you over $30,000 on a typical $200,000 loan! Where does the strategy come from?
Most months have four weeks, which means that in those months, you’ll be paying the exact same amount as if you made your typical monthly payment.
Each year, a few months have a fifth week, which is why we have 52 weeks in a year instead of 48.
With 52 weeks in a year, you would make 26 half payments over the course of the year by using this strategy.
That adds up to 13 full payments – and a mortgage that’s just a little bit closer to being paid off!
Here are the numbers: A $200,000, 30–year home loan with an interest rate of 5% would cost $186,512 in interest with the traditional 12 payments a year.
Make the equivalent of 13 monthly payments every year, and the loan will be retired in 26 years and you will pay only $153,813 in interest — a savings of $32,699.