It’s almost everyone’s American dream to own your own home and dreamers will go to any lengths to accomplish this even if it means borrowing thousands of dollars to be paid back over a 30 year period. It’s quite an obligation to make 360 payments month after month with the bulk of the money going toward interest, at least in the beginning.
Just paying interest on an average home over a 30 year period can account for twice the cost of the some homes. Unfortunately Interest is working against you 24/7/365. Most mortgages are 30 years so time also works against you. Wouldn’t it be wonderful if you could pay off your mortgage debt years sooner and save thousands of dollars?
This can be done, it just takes discipline and perhaps a little budget adjusting. It’s no mystery that paying the mortgage twice a month, instead of only once will save you thousands and pay off your debt years sooner. Some call it the bi-weekly mortgage payment plan.
For example: Let’s say you paid $160,000 for your home and got a 7% loan for 30 years. If you divide the payment in half and pay it every two weeks you should save $50,000 in interest payments and reduce the term by 8 years.(example only consult your mortgage company to get exacts)
Not to shabby for a little extra work. Naturally, the higher the loan amount and interest rate, the more you save. You’re paying less interest and more on the principal. The extra mortgage payments bring down the principal and interest faster.
Can just setting up a 15 or 20 year mortgage term in the beginning achieve the same thing? In essence sure. Just a lot of wannabee homeowners cannot qualify for a shorter term mortgage because of the higher payment. With the bi-weekly payment plan, you can take control yourself and enjoy the flexibility.
There are many companies who will set this up for you for a fee ranging from $200 to $500. Or, some will do it free simply charging a transaction fee each time you make a payment. Could you do it yourself? Yes, but speak to your lender and understand the small print in your mortgage contract. You might have a pre-payment penalty for paying off the loan ahead of time. Some lenders also tack on a service fee each time you make the extra payment.
Banks can also provide you with a bi-weekly calculator to let you determine how much you would save and how soon you would actually own your home. You’ll also save on private mortgage insurance (PMI) by paying off the loan early.
By paying bi-weekly, you’re actually paying one extra payment a year and that makes the difference. You can accomplish the same thing by making an extra payment whenever you can of any amount. When you do this, write a separate check with a note that states the money should be applied to the principal and not the interest.
Most financial institutions are glad to help you with saving money on your mortgage but it’s up to you to get the money saving features rolling. For about the cost of dinner (avg family of 4 – $100) and a movie for you and your family each week you could be mortgage free years sooner and save thousands of dollars.
Check out more of Money Saving Tips.