How to Save Thousands of Dollars when Buying a Home

by David Dell'Olio

How to Save Thousands of Dollars when Buying a Home

Paying half of the monthly payment every two weeks instead of the full monthly payment can help a buyer save money on interest and pay off their 30-year loan earlier. This works by making 26 half payments in a year, equivalent to 13 full monthly payments. This adds one extra month's payment each year. By doing this, a buyer can pay off the loan 4 years earlier and save $20,000 in interest (Based on a $200K loan, 4.1% APR).

By making 26 half payments, you will see several additional benefits such as:

Paying less interest over time

Making biweekly mortgage payments can help you save money because it accelerates the process of paying down the principal of your loan. Normally, a significant portion of your initial mortgage payments will go towards interest, while only a small portion will be used to reduce the loan balance. By making biweekly payments, you make an extra payment each year, which helps to decrease the principal faster. As a result, the subsequent interest payments become smaller. Over time, this can lead to significant savings in interest payments throughout your loan.

Building equity faster

One of the biggest benefits of making biweekly mortgage payments is that you build home equity faster. By making biweekly payments and managing to squeeze in that extra payment each year, you’ll be reducing the balance of your loan. And the extra payment will help you build equity. There are a lot of benefits to having home equity early. Once you have enough home equity, you can take out a home equity loan (or HELOC) to finance things like repairs or remodels.

Dropping your PMI sooner

The average homebuyer, in 2017, bought their home with a 10% down payment. With most conventional loans (not including FHA, VA and USDA loans), you need at least a 20% down payment to avoid paying for private mortgage insurance (PMI) each month. So, if you are making biweekly payments, you will pay down the balance of your loan quicker and reach the 20% equity threshold in your home sooner. Then you can ask your conventional lender to cancel your PMI payments, saving you money every month.