How much interest do I save if I pay half my mortgage early on the 15th of each month?
I think what you are asking is about bi weekly payments. Paying half the mortgage bi weekly creates a thirteenth month. That extra month (from 26 half payments) is all principal no interest.
What is great about doing this is that it shortens the length of your mortgage. It can save you 7 years on the back end of your loan. Meaning a 30 year mortgage could be paid off in roughly 23 years by using this method saving you 7 years worth of making payments.
This means if your payment is $1,000 then by paying it back this way you would save $84,000 on this estimate.
Some say that this estimate is on the low side and that the savings is actually even greater than this. Some lenders will try to charge you to set this up, you do not need them you can set it up on auto pay from your own bank and save the extra money there as well.
Paying your mortgage early each month doesn't save you an interest. The monthly payment includes a full months of interest.
Where you save money is when you make extra payments on your mortgage each year. Example would be if you made 1 monthly payment each year on your mortgage that tirms time on the lifetime length you pay thus reducing the amount of interest you pay over the life of the mortage.
The lenghth of time the mortgage is shortened for each extra monthly payment you make depends on the size and lenght of your mortage.
For example, making one extra payment on a 15-year, $300,000 mortgage with a 5% interest rate breaks down to about $200 extra per month. If you pay $2,572 each month instead of the required $2,372, for example, you can cut the number of payments down from 180 to 161 (from 15 years to 13.4) and the total interest paid from $127,029 to $111,653. The higher the interest rate, the more you'll save by making extra payments.
Before you decide to make extra payments on your mortgage look at other things those funds could be used for: paying down high rate credit cards, retirement fund, college fund, etc. Consult with a financial planner or some one that can help you determine if making extra payments is the right approach for your financial situation.
Basically none. Your question does not quite get the answer that I think you are looking for however. What I believe you were wanting to know is how much is saved by paying on a bi-weekly program.
When you talk of making two payments per month equal to half of an entire payment, the loan is still being amortized over a 30 year period. I did work up a $100,000 loan at 5% interest with this twice a month plan. The savings over the term of the loan would be about $86 total.
Now, using a bi-weekly program, since there are 52 weeks per year, you are making the near equivalent of 13 payments per year. Based on a bi-weekly pay plan under the same terms, your loan would be paid off over 657 payments which equals 25.27 Years. The total then paid in would be $176,345 as compared to $193,255 for a full term monthly amortizing loan. That creates a savings of $16,910. The savings and the term of payoff will change depending upon the interest rate of the loan.
Most institutions will not allow an individual to pay bi-weekly as the note states any payments must be equal to or greater than the amortized payment amount. There are firms that you can hire to collect a payment for you every two weeks and then make a payment for you each 4 weeks for a service fee. The best alternative for most clients is to pay a full payment each 4 weeks directly to the bank themselves. This creates the almost exact outcome as a true bi-weekly program (which does not really exist in today's world anyway).