Save $10,000s and more with Bi-Weekly Mortgage and the alternative

Article: Save $10,000s and more with Bi-Weekly Mortgage and the alternative

You'll can save tens of thousands of dollars in interest with the bi-weekly mortgage plan. You can also reduce the balance and build equity faster, too. In a bi-weekly mortgage program, you use half of your standard monthly mortgage payment to make the mortgage payment every two weeks. This way, you make 26 bi-weekly payments since there're 52 weeks
in a year. It turns out you actually make one additional monthly
payment every year.

Let's compare the standard plan and the bi-weekly plan. For a
loan amount of $100,000, an interest rate of 7%, a loan term
of 30 years, the standard monthly payment would be $665.30.
You'll pay a total of $139,509 in interest. When you use the
bi-weekly mortgage plan with the same loan's amount, you make
a mortgage payment of $332.65 every two weeks, and you'll pay
a total of $105,046 in interest. Comparing to the standard
plan, you'll save a total of $34,462 in interest. You'll pay
off the mortgage loan six or seven years earlier.

For a large loan, the saving is more dramatic. Such large loans
are needed to buy homes in some areas in the United States. A
typical home in Orange County, Calif. is about $500,000.
(Housing prices keep rising up. One day, a bubble may burst;
see this book.) For a loan amount of $500,000, an interest rate
of 7%, a loan term of 30 years, the standard monthly payment
would be $3326.51. You'll pay a total of $697,544 (incredible!)
in interest. When you use the bi-weekly mortgage plan with the
same loan's amount, you make a mortgage payment of $1663.26
every two weeks, and you'll pay a total of $525,231 in interest.
Comparing to the standard plan, you'll save a total of $172,313
in interest. You'll pay off the mortgage loan six or seven years
earlier.

Bi-weekly mortgage payment plan is remarkable in reducing interest
and balance for the life of a loan, but when you change the plan
from standard to bi-weekly, you have to pay a few hundreds dollars
for the initial setup fee plus a monthly service fee to the lender.
You probably have to pay the penalty fee when switching the plans,
too. You also need to find a reputable lender who offers the bi-
weekly mortgage, and you don't want fraud and scam from an
unlicensed lender.

An alternative to the bi-weekly mortgage plan, which has the same
effect, is a "do-it-yourself" plan. You divide your monthly mortgage
payment by 12, and add this amount to your standard monthly
payment every month. Another way is saving up the money and make
one additional monthly mortgage payment every year. In both ways,
make sure you tell the lender that the extra money should be
credited toward the principal of the loan. Also, check your
loan statement to see if additional payment is clearly marked
as extra principal payment.

Article: Save $10,000s and more with Bi-Weekly Mortgage and the alternative
By John Nguyen and Associates
Developers of Savingsforyou.net and Orange County Business Directory, CA