Do mortgage rate payment hacks really work, like influencers say?
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You can “save a ton on interest” on your mortgage with one viral TikTok hack, according to an influencer called “Mrs. Dow Jones,” posting in late September. All that homeowners have to do is make biweekly payments—i.e., half their mortgage, twice a month—instead of monthly payments. This method means homeowners make 13 payments in a year instead of 12, thus bringing down their mortgage balance more quickly.
“Just make sure you call your lender and have them apply that extra payment to the principal balance, not the interest,” Mrs. Dow Jones added, reasoning that making extra payments toward the principal brings the whole thing down faster.
Another influencer under the alias “alicia_yourmortgagegal” gave similar advice in another viral TikTok, calculating that homeowners could save $83,000, assuming a $300,000 home at a 6.5% mortgage rate.
With that money saved, “you could buy a new car, buy new boobs,” Alicia said. This money could also go toward a vacation, shopping trip, or even an investment property, Thorngren added. But what do less online, more traditional mortgage experts think of this strategy?
While many agree this can be done and that it can be a lucrative choice for some homeowners in the long run, there are several things to know and consider before making this change. And getting plastic surgery or going on a vacation with the money saved every year isn’t what they advise, by and large.
This mortgage hack is not for everybody
Many homebuyers are at risk of becoming house poor since mortgage rates hit the distinctly retro rate of 8% in October—a high for the young 21st century. Indeed, surging mortgage rates have pushed monthly payments up 60% ($871) year-over-year, according to real estate data and analytics firm Black Knight, leaving left one-fourth of homeowners strapped with $3,000-plus monthly payments.
One reason you may not want to lean into the biweekly mortgage payments hack is that it’s just not possible for everyoneall time. Not all lenders offer biweekly payment plan options, “because it’s simply out of their normal day-to-day operations and the way they are accustomed to collecting and applying payments,” Brandon Snow, executive director of mortgage strategy at Ally Home, tells Fortune. Plus, some lenders may charge a setup or transactional fee to set up this type of payment plan, he says.
Beyond that, the strategy isn’t a one-size-fits-all. While it could be lucrative in the long run, he acknowledged, adding additional payments can present a challenge for certain homeowners, particularly those who live paycheck-to-paycheck.
“First and foremost, borrowers should consider the impact to their monthly budget and whether discretionary income allows for the additional payments, ensuring they aren’t sacrificing their ability to save for other expenses that may arise,” Snow says. However, “this can be a great strategy for those who are able to budget for it to shorten the term of the loan, while driving down overall interest costs of the mortgage.”
Simply making one additional mortgage payment per year can also help achieve the same outcome. But the biweekly strategy could potentially work well for homeowners who are paid by the same cadence.
“It’s worth noting that the extra payment is spread out over the year, so it doesn’t feel as burdensome as making a full additional payment at once,” Andrew Latham, a certified financial planner and managing editor of Supermoney.com, tells Fortune. “Some people may find it easier to manage their finances with biweekly payments, especially if they get paid on a biweekly basis.”
Overall, one of the most important things to consider with this method is the opportunity cost of making more payments per year. The extra money being spent each year on the principal mortgage balance could be spent or saved elsewhere, experts agree. This could include building up emergency savings, sending money to a high-yield savings account, investing, and adding to retirement and college funds.
“Some borrowers mistakenly view the purchase of a home as their chief investment,” Robert Johnson, a finance professor at Creighton University, tells Fortune. “If mortgage payments are so large as a percentage of monthly income that people can’t adequately fund their retirement account or a child’s college education account, then it may be wise to simply pay your mortgage over the normal term of the loan.” Johnson is also the former deputy CEO of the CFA Institute, which provides investment professionals with finance education.
Directing money toward savings as opposed to additional mortgage payments can have its pitfalls, though, too.
“It’s unlikely individuals who bought in the latter part of 2022 and all of 2023 are able to achieve a savings rate that is higher than their mortgage rate,” Snow says, meaning that the biweekly plan could work better for them.
“But, if your mortgage rate is less than your savings account rate—which would be the situation for many who bought their home before 2022—you may want to maintain the usual monthly mortgage payment schedule,” Snow says.
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