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Last Update:02/20/2007

How to shorten mortgage loan term & save money on interest payment

If you are like most homeowners, your mortgage payments are due on a certain date every month for however long you hold the loan for a typical 30-year mortgage, you make 12 monthly payments every year, or as many as 360 payments total over the life of the loan. But with one simple adjustment, you can lop thousands of dollars off your interest costs and slice six years or 72 monthly payments from your 30-year loan. 

How? Dump the monthly schedule and switch to biweekly payments.

With biweekly payments, you make a half-payment every two weeks instead of a full payment every calendar month. If you pay half the regular monthly amount every 14 days, that means at the end of the 365 days, you’ve made 26 payments - the equivalent of 13 full payments, one every 28 days - rather than just 12 payments. Why? It’s all in the units we use to measure time. Very simply: Thanks to the Gregorian calendar we use, a “month” varies in length from 31 to 28 days. But two weeks always equals 14 days, and four weeks is always 28 days. By making a full payment every 28 days instead of one every “month,” you are making slightly more-frequent payments that convert that 30-year mortgage into a 24-year loan.

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