To save thousands of dollars of mortgage interest, divide your monthly mortgage bill by two and pay that amount every two weeks. That gives you 26 half-month payments, the equivalent of 13 monthly payments each year. The extra annual payment reduces your outstanding mortgage principal and slashes your interest cost.
For example, on a 30-year, $100,000, 6.8 percent mortgage you’ll eventually pay about $135,000 in interest. If you pay half the monthly mortgage every two weeks, the loan is paid off in 23 years, with total interest of about $100,000, for a savings of some $35,000.
Some lenders will require a fee for switching to a biweekly plan. Paying a fee, though, eats into your cost savings. If your lender insists on a fee, keep your regular monthly schedule but add an extra 10 percent to each payment. Be sure to indicate that the extra money is designated for principal reduction.