A 30-year mortgage costs homeowners roughly double the purchase price in interest. Wealthy borrowers cut this by splitting their principal-and-interest payment in half and making an extra principal-only payment mid-month, shrinking a 30-year loan to 15 years.
Your typical homeowner pays double for their house— once for the house and once for the interest on the house. But rich people skip that second payment. So stick with me because I'm going to show you how they do it. The first thing you need to know is a 30-year fixed rate mortgage is not a loan, it's a profit machine. Let's say you borrow $400,000 to buy a house. Over the course of those 30 years, you'll pay over a million dollars. Half of that is pure interest to the bank. The way rich people avoid this is simple: they break the payment cycle that the bank designed to keep them in debt. So if you take your mortgage payments principal and interest, exclude the taxes and insurance, let's say it's $6,000, and divide that by 6, you get $1,000. That $1,000 is what you would make as a principal-only mid-monthly payment. It's a small, consistent effort that's laser-focused on reducing your debt by making the compounding effect on your mortgage less effective. By paying your principal twice a month, you'll actually shave off decades on that loan. And that's how you turn a 30-year mortgage into a 15-year one.
