Bi Weekly MortgagesBi Weekly Mortgages
- The typical mortgage is structured so that you make a single payment each month for a total of
twelve payments per year. The good thing about this is that it means you pay the same amount at the same time each month so there are no surprises and it’s easy to budget for. But what would happen if you split that monthly payment up and made bi-weekly payments? You could save yourself tens of thousands of dollars on interest if you use a bi-weekl-mortgage.
Bi weekly mortgages shorten the loan term from 30 years to 18 to 19 years by requiring a payment for half the monthly amount every two weeks. While you pay about 8 percent more a year towards the loan's principal than you would with the 30-year, one-payment-per-month loan, you pay substantially less interest over the life of the loan. Keep in mind, however, that with shorter-term loans, you trade lower total costs for smaller mortgage interest deductions on your income tax.
Every 2 weeks the amount of one-half of your monthly mortgage payment will be due. This pattern ensures that 1 extra monthly payment amount is applied directly to the principal balance each year.
Bi weekly Mortgage payments coincide payroll dates
you can do exactly the same thing that your mortgage company would do. This is to place your biweekly payments in a bank account, each month withdrawing the amount needed to make the monthly payment.
The balance in the account will gradually rise because you are making 26 biweekly payments a year, which is the equivalent of 13 monthly payments. After 12 months, there will be enough in the account for a double payment also retain the interest earned on the account. Just make sure that your extra payment includes a note stating that the additional payment is to reduce principal, and is not an advance payment for the following month.
There is an easier way to accomplish the same goal. Divide your monthly payment by 12, and add that amount to your payment every month. Doing it this way will actually pay off the loan sooner than if you convert to a biweekly. You start reducing the balance (and interest on that balance) with the first additional payment, whereas with a biweekly it takes a year before you begin reducing the balance.
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