Is it good to double up mortgage payments?

Is It Beneficial to Double Up on Mortgage Payments?

For homeowners seeking to accelerate their mortgage payoff, doubling up on monthly payments has emerged as a popular strategy. By making bi-weekly payments instead of monthly payments, homeowners can potentially save thousands of dollars in interest and shave years off the loan term.

How Doubling Up Payments Works

Traditionally, mortgage payments are made monthly. However, by splitting the monthly payment in half and making two payments each month, the borrower effectively makes an extra payment each year. This extra payment goes towards reducing the principal balance faster, thereby reducing the interest accrued over the life of the loan.

Benefits of Doubling Up Payments

• Reduced Interest: The extra payments made towards the principal balance result in a reduction in the overall amount of interest paid over the loan term.
• Shorter Loan Term: By paying off the loan faster, homeowners can shorten the loan term by several years, potentially saving thousands of dollars in interest.
• Improved Cash Flow: The bi-weekly payment schedule can improve cash flow for homeowners who receive their paychecks on a bi-weekly basis. The smaller payment amounts are easier to manage within the bi-weekly pay schedule.

Factors to Consider

While doubling up on mortgage payments can be beneficial, it’s crucial to consider the following factors:

• Interest Rate: The lower the interest rate on the mortgage, the less significant the savings will be from doubling up payments.
• Remaining Loan Balance: The larger the remaining loan balance, the greater the potential savings from doubling up payments.
• Financial Stability: Before committing to doubling up payments, homeowners should ensure they have the financial stability to handle the increased monthly payments.

Calculating the Savings

The specific savings achieved by doubling up mortgage payments depend on individual loan specifics. However, a simple calculation can provide an estimate:

Savings = Extra Principal Payment x (1 + Interest Rate) ^ (Remaining Loan Term / 12) – 1

Example:

• Mortgage Balance: $200,000
• Interest Rate: 4%
• Remaining Loan Term: 20 years

Extra Payment = $100,000 / 24 = $4,166.67

Savings = $4,166.67 x (1 + 0.04) ^ (20 / 12) – 1
= $4,166.67 x (1.04) ^ 16.67 – 1
= $20,283.29

In this example, doubling up mortgage payments would save the homeowner approximately $20,000 in interest and reduce the loan term by about 2 years.

Conclusion

Doubling up on mortgage payments can be a highly effective strategy for accelerating mortgage payoff and saving money. However, it’s important to consider individual loan specifics and financial stability before implementing this strategy. By carefully evaluating the potential benefits and drawbacks, homeowners can make an informed decision that best suits their financial situation.

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