# This mortgage trick could save you thousands

A simple mortgage repayment trick could save you thousands in interest. Read this article to learn how.

For many, homeownership represents the ultimate American Dream. And for most of these people, the way to achieve that dream is to take out a mortgage in order to finance that home.

Here's the problem: When you take out a 30-year mortgage, which many of us do, you wind up paying more interest than you may have realized. Let's say you've got a 30-year, \$200,000 fixed mortgage at 5% interest. If you make your monthly payment as required, then you'll wind up paying a total of \$186,512 in interest over time, which is almost as much as the principal.

See, when you make a mortgage payment, a portion of that money goes toward the principal amount of your loan, and the other part goes toward interest. During the early years of your mortgage, your payments will primarily go toward interest, but over time, your principal payments will increase, and your interest payments will decrease. That's because you're charged interest based on your outstanding principal.

So how do you save money on those interest charges? It's simple: Pay down that principal sooner. That sounds painfully obvious, but you may not realize there's a relatively painless way to do it.

### Biweekly payments

Of course, if you had a large chunk of cash available, you probably would've taken out a smaller mortgage in the first place. But here's an easy way to chip away at that principal more quickly. Instead of making your regular monthly payment, take that amount, divide it in two, and pay it every two weeks.

Using our example, your \$200,000 mortgage at 5% would translate into a monthly payment of \$1,073.64. If you take that figure and divide it by two, you're looking at a payment of \$536.82 every two weeks. What'll happen over the course of a year is that you'll end up making the equivalent of one extra monthly payment, except you won't miss that money nearly as much as you would if you forked over a lump sum of cash to pay down your mortgage.

Now watch what happens next: Instead of paying \$186,511 in interest over the course of your loan, you'll wind up paying just \$151,787 by making biweekly payments. That's almost \$35,000 in savings right there. Not only that, but you'll also shave close to five years off the life of your loan.

### Entering retirement debt-free

Aside from saving yourself loads of money in interest charges, paying off your mortgage early could also spell the difference between carrying that debt into retirement and leaving the workforce debt-free. In 2011, an estimated 6.1 million homeowners aged 65 and older were still making monthly mortgage payments, whereas a decade prior, only about half as many people in that same age group still carried mortgage debt. Many people who plan for retirement do so with the assumption that their monthly expenses will go down once they've left the workforce, but if you're still liable for a mortgage payment, then you could find yourself financially squeezed.

### Lump-sum payments

Of course, if you find you're able to apply a lump-sum payment toward your mortgage, then you can achieve the same goal of paying off your loan more quickly and saving yourself thousands of dollars in interest payments.

Say you receive a \$20,000 bonus or inheritance and you apply it to your mortgage during the first year of your loan. Rather than pay \$186,511 in interest, you'll knock your lifetime interest payments down to \$131,551. In other words, putting in \$20,000 will actually save you close to \$55,000 over time, not to mention that you'll be able to shorten your loan by about six years.

And it doesn't have to be a monumental amount to make a difference. Even a small extra payment here and there can really add up. Say you manage to put only \$2,000 extra toward your mortgage that first year. You'll still knock your total interest payment down to \$179,954 and save a total of \$6,557. Plus, you'll shave seven months off the life of your loan.

Remember: When a bank lends you money to buy a home, it does so to profit. The sooner you pay down your principal, the less money you'll lose to interest, which means you'll have more cash available to invest for retirement, college, or whatever other life goal you see fit.

Topics:
• Mortgages
• Mortgages
• Mortgages
• Mortgages
This article was written by Maurie Backman from The Motley Fool and was licensed as an article reprint from January 25, 2016. Article copyright 2016 by The Motley Fool.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third-party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917.
751787.1.0
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "
Your e-mail has been sent.
Your e-mail has been sent.

### Taking your wallet on vacation? Here's how to keep it safe

Tourists are often targeted by pickpockets or thieves. Read here to learn how you can keep your wallet safe on vacation.

### This man went from \$50,000 debt to running a \$20 million company

This article explores how one man paid off an extraordinary amount of debt to run his own small business.

### Is a 700 credit score the magic number?

Credit scores are incredibly important to maintaining your personal finance. This article discusses the possibility of finding the perfect credit score.

### 7 shocking ways you could be hurting your credit score

Most are aware of the financial benefits associated with maintaining good credit, but few are aware of these little known ways that you could be accidentally hurting your credit score.