Today's renter, c. 2040

If enough people educate themselves, hopefully we can add “arguing that it’s better to rent than own a house” to the list of pseudoscientific hogwash. In fact, that’s an insult to hogwash, which serves the valuable purpose of washing hogs.

Yes, high interest rates can make home ownership difficult. That’s a moot point, seeing as mortgage rates are currently around an extremely palatable 5.41%. Besides, the highest mortgage rates of the authors’ lifetime (18% in the mid-to-late ’70s) can’t compare to the 100% that a landlord charges you. Again, the landlord gets it all. This is not hard to comprehend, although for some people it’s easy to rationalize away.

So you’ve agreed to buy, and found yourself a 30-year fixed rate mortgage in the process. (If you think you can somehow justify having an adjustable-rate mortgage, which could theoretically rise to any interest level the mortgagor chooses, please find another blog that’s more your speed. One with funny pictures of cats, for instance.) How to pay the mortgage off? Is there a better way than cutting monthly checks for the next 30 years?

There is, and it’s not the obvious one.

Lately it’s become vogue to make biweekly payments, thus reducing the 30-year obligation to 24 years and 9 months and saving tens of thousands in interest. That’s true, but there are a couple of reservations to keep in mind:

a) Paying biweekly doesn’t mean you’ll be paying 24 times a year. It means you’ll be paying 26 times a year.

b) If you want to make an extra 2 payments a year, there’s a better way to do it.
Once a year, preferably on the same date, send a payment equivalent to the monthly payment to your lender but specify that it’s to go exclusively to the principal.
Take a $300K loan, 6% APR, which means a $1798.65 monthly payment. By making biweekly payments for half as much, you’ll save $70,924 over the course of the loan. But making an extra annual principal-only payment amortizes your 30-year mortgage off in 24 years and 5 months, or 4 months faster than using the biweekly method. And it saves you an additional $5525, for a total of $76,449.

Our research shows that readers love charts, especially ones featuring columns of numbers. So here are three amortization schedules for that 30-year, 6% mortgage. In order:

1) standard monthly payments;
2) standard monthly payments, with an extra annual principal only-payment;
3) biweekly payments.

Standard
Year Interest Principal Balance
2010 $17,899.78 $3,684.04 $296,315.96
2011 $17,672.56 $3,911.26 $292,404.71
2012 $17,431.32 $4,152.50 $288,252.21
2013 $17,175.21 $4,408.61 $283,843.60
2014 $16,903.29 $4,680.53 $279,163.07
2015 $16,614.61 $4,969.21 $274,193.86
2016 $16,308.12 $5,275.70 $268,918.16
2017 $15,982.72 $5,601.10 $263,317.06
2018 $15,637.26 $5,946.56 $257,370.50
2019 $15,270.49 $6,313.33 $251,057.17
2020 $14,881.10 $6,702.72 $244,354.45
2021 $14,467.69 $7,116.13 $237,238.32
2022 $14,028.78 $7,555.04 $229,683.28
2023 $13,562.80 $8,021.02 $221,662.27
2024 $13,068.08 $8,515.74 $213,146.53
2025 $12,542.85 $9,040.97 $204,105.57
2026 $11,985.22 $9,598.59 $194,506.97
2027 $11,393.20 $10,190.61 $184,316.36
2028 $10,764.67 $10,819.15 $173,497.21
2029 $10,097.37 $11,486.45 $162,010.76
2030 $9,388.91 $12,194.91 $149,815.85
2031 $8,636.75 $12,947.06 $136,868.78
2032 $7,838.21 $13,745.61 $123,123.17
2033 $6,990.41 $14,593.41 $108,529.76
2034 $6,090.32 $15,493.50 $93,036.26
2035 $5,134.71 $16,449.11 $76,587.16
2036 $4,120.17 $17,463.65 $59,123.51
2037 $3,043.05 $18,540.77 $40,582.73
2038 $1,899.49 $19,684.32 $20,898.41
2039 $685.41 $20,898.41 $0
Total $347,514.55 $300,000

With additional annual principal-only payment
Year Interest Principal Balance
2010 $17,798.35 $5,584.12 $294,415.88
2011 $17,453.93 $5,928.54 $288,487.34
2012 $17,088.27 $6,294.20 $282,193.14
2013 $16,700.06 $6,682.41 $275,510.73
2014 $16,287.90 $7,094.57 $268,416.17
2015 $15,850.33 $7,532.14 $260,884.02
2016 $15,385.76 $7,996.71 $252,887.32
2017 $14,892.54 $8,489.93 $244,397.39
2018 $14,368.90 $9,013.57 $235,383.82
2019 $13,812.96 $9,569.51 $225,814.31
2020 $13,222.74 $10,159.73 $215,654.58
2021 $12,596.11 $10,786.36 $204,868.22
2022 $11,930.83 $11,451.64 $193,416.57
2023 $11,224.51 $12,157.95 $181,258.62
2024 $10,474.64 $12,907.83 $168,350.79
2025 $9,678.51 $13,703.96 $154,646.83
2026 $8,823.28 $14,549.19 $140,097.65
2027 $7,935.92 $15,446.55 $124,651.10
2028 $6,983.21 $16,399.26 $108,251.84
2029 $5,971.74 $17,410.73 $90,841.11
2030 $4,897.88 $18,484.58 $72,356.53
2031 $3,757.80 $19,624.67 $52,731.86
2032 $2,547.39 $20,835.08 $31,896.78
2033 $1,262.33 $22,120.14 $9,776.63
2034
(through May) $120.24 $9,776.64 $0
Total $271,066.13 $300,000

Biweekly payments
Interest Principal Balance
2010 $17,899.78 $5,482.69 $294,517.31
2011 $17,561.62 $5,820.85 $288,696.47
2012 $17,202.61 $6,179.86 $282,516.60
2013 $16,821.45 $6,561.02 $275,955.58
2014 $16,416.78 $6,965.69 $268,989.88
2015 $15,987.15 $7,395.32 $261,594.56
2016 $15,531.02 $7,851.45 $253,743.11
2017 $15,046.76 $8,335.71 $245,407.40
2018 $14,532.63 $8,849.84 $236,557.56
2019 $13,986.79 $9,395.68 $227,161.88
2020 $13,407.29 $9,975.18 $217,186.70
2021 $12,792.04 $10,590.43 $206,596.27
2022 $12,138.85 $11,243.62 $195,352.65
2023 $11,445.36 $11,937.11 $183,415.54
2024 $10,709.11 $12,673.36 $170,742.18
2025 $9,927.44 $13,455.03 $157,287.15
2026 $9,097.57 $14,284.90 $143,002.25
2027 $8,216.51 $15,165.96 $127,836.29
2028 $7,281.10 $16,101.37 $111,734.92
2029 $6,288.01 $17,094.46 $94,640.45
2030 $5,233.66 $18,148.81 $76,491.64
2031 $4,114.28 $19,268.19 $57,223.45
2032 $2,925.86 $20,456.61 $36,766.83
2033 $1,664.14 $21,718.33 $15,048.50
2034
(through Sept.) $363.32 $15,048.50 $0
Total $276,591.13 $300,000

Could you use an extra $5525?