A bi-weekly payment plan can save you money in the long run, but it's not right for everyone. A bi-weekly mortgage payment plan can save you tens of thousands of dollars in interest, and can help you pay off your home loan faster.
There is an alternative to monthly payments — making half your monthly payment every two weeks. When you make biweekly payments, you could save more money on interest and pay your mortgage down faster than you would by making payments once a month.
Biweekly payments accelerate your mortgage payoff by paying 1/2 of your normal monthly payment every two weeks. By the end of each year, you will have paid the equivalent of 13 monthly payments instead of 12. This simple technique can shave years off your mortgage and save you thousands of dollars in interest.
If you pay your mortgage monthly, like most homeowners, you're making 12 payments a year. ... “Biweekly payments would save a borrower nearly $30,000 in interest charges and have the loan paid off in five fewer years,” he says.
But paying weekly leads to no more savings than paying bi-weekly because 26 and 52 payments both add up to the same one extra month, or 13 mortgage payments, instead of 12, per year, she adds. ... At an interest rate of 4.18%, the monthly payment would be $2,439.26.
The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments. The extra payments will allow you to pay off your remaining loan balance 3 years earlier.
The bi-weekly scheme actually provides a 13th monthly payment each year, and that extra must be aplied to lowering your balance. At today's mortgage rates, bi-weekly payments shorten your loan term by four years.
3. Make one extra mortgage payment each year. Making an extra mortgage payment each year could reduce the term of your loan significantly. ... For example, by paying $975 each month on a $900 mortgage payment, you'll have paid the equivalent of an extra payment by the end of the year.
Accelerated weekly and biweekly payments
Since you would pay 26 biweekly payments, by the end of a year you would have paid the equivalent of one extra monthly payment. This additional amount accelerates your loan payoff by going directly against your loan's principal.
How to pay off your mortgage early
If your lender doesn't offer a biweekly payment option, you can create one for yourself. It's relatively simple to do: divide your monthly mortgage payment by 12, and make one principal-only extra mortgage payment for the resulting amount each month.
Considerations. There are other small advantages to prepaying monthly instead of yearly. With each regularly scheduled payment on a fixed rate loan, you pay a little more principal and a little less interest than on the previous payment. So the sooner you prepay, the further ahead on the payment schedule you will jump.
If you get paid twice per month, make a payment each time you get a paycheck. You could also make an extra lump-sum payment at the end of the year. Another simple way to put more toward your mortgage is to round your payments. If each of your payments is $1,004, then pay $1,010 each time.
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