real estate

The Smart Way to Make Extra Mortgage Payments

You can pay down your mortgage faster on your own without locking yourself into a set payment schedule.

My mortgage company is offering to sign me up for weekly or biweekly, rather than monthly, payments. The program is free, and I’m told it will help me pay off the loan faster. Should I sign up? --M.W., Sacramento, Calif.

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Because a year has 52 weeks—or 13 four-week periods—making weekly payments works out to be an extra monthly payment each year. Making weekly or biweekly payments can be an easy way to help you pay off your loan faster and save money on interest. Paying biweekly on a $300,000, 30-year mortgage with a 4% interest rate rather than monthly will pay off the loan more than four years early (see the biweekly mortgage calculator at Bankrate.com).

But you can accomplish the same goal on your own and maintain more flexibility by making one extra monthly payment each year. Do that whenever you have extra cash, rather than locking yourself into a program. You may have more-pressing uses for the money, such as saving for retirement, building your emergency fund or paying off higher-interest debt. “Unless you are maxing out your 401(k) and IRA, there are other, higher priorities for your spare cash than paying down a low, fixed-rate, often tax-deductible mortgage,” says Greg McBride, chief financial analyst at Bankrate.com.

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