Tip #1: Bi-weekly or Weekly Payments

This single method can save you thousands of dollars by itself. You can start using this method the very day you read this. Simply call your bank and ask to start taking your payments out bi-weekly on an accelerated or rapid payment plan.

You can also request that the bank coordinate your payments with your pay day. It has always been easier to pay your bills on the day you get paid…simply request this at the time that you change your payment method. By implementing this one strategy you can save over four year’s worth of interest and payments.

Example
Based on a $100,000 mortgage at 6.00% interest for a 5-year term amortized over 25-years:
• Your monthly payment would be $639.81
• You would pay $28,225.07 in interest over the first 5 years
• You would pay $10,163.50 in principle over the same 5 years

Implementing a Bi-weekly Payment
Using the same $100,000 mortgage at 6.00% interest for 5-years amortized over 25-years:
• You now would be paying bi-weekly payments of $319.91
• You end up making two extra payments during each calendar year: one in November and one in July which, when totaled, is only one extra payment per year
• You would pay $27,646.99 in interest over the first 5 years
• You would pay $13,941.31 in interest over the same 5 years

What You Will Save
• First you will save $578.08 in interest payments over the first 5 years
• Second, you will have paid an extra $3,777.78 in principle
• Third, your payment stays close to the same except you now make two payments instead of one each month and they are made when you get your pay cheque.

In other words, you will pay off your mortgage faster just by paying your mortgage on a bi-weekly basis. The best part is that you won’t likely even notice it after the first few months. Just like anything we do that’s new to us, it takes time to turn it into a routine.

There are many books that provide differing opinions on how we instill a habit into our daily lives. The common thread in most of the theories I have read say it takes about 21 days to form a habit, good or bad.

I am going to go out on a limb and say it will take a bit longer to accept this method of bi-weekly payments. After 3 or 4 months it will become a habit you can live with. If it still hasn’t become a habit after this time, just recall how much money you will save by doing this, and it will become easier!