What happens if I make one extra mortgage payment per year?Answer:
You don't even need to come up with one extra mortgage payment per year all at one time. And you don't even need to pay for an expensive biweekly plan. Adding 1/12th of a mortgage payment to the mortgage monthly payment is cheaper, does not require additional account setup and doesn't burden you. The effect of one extra mortgage payment spread evenly through the year is similar to making biweekly payments.
So, this is how it works:
Let us assume that you are paying $1,199.10 monthly for a $200,000 mortgage at 6% for 30 years. If you set your automatic mortgage payment with additional 1/12 of the monthly mortgage premium, you are adding $99.93 each month, or paying $1,299.03 a month. As a result, your loan amortizes 5 years and 5 months faster and you save more than $49K.
A biweekly plan will work much the same way, but will most often cost a setup fee and produces basically the same effect.
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