The myth of bi-weekly payments…. It is true that by switching to bi-weekly mortgage payments, you can reduce the amount of time it takes to pay off your home from 30 years to (roughly) 20 years? If you have a $200,000 loan at 4% and a payment of $954 a month, 12 monthly payments works out to $11,448 per year in payments. In a 52 week year, and if you pay $477 every 2 weeks, you would pay 26 times a year or $12,402. Therefore you pay the equivalent of 13 monthly payments….i.e. one extra payment. Now the real truth…the third party companies that facilitate the bi-weekly payments, charge upward of $15 per payment or about $400 a year. You can accomplish the same thing at no charge, by just making one extra payment per year. In this scenario, one extra payment per year (depending on if you do it at the beginning of each year or the end) saves about $23,000 in interest over the life of the loan. In conclusion…make one extra payment a year when you get your annual bonus. If you don’t get a bonus…..use your kid’s Christmas gift fund…….nothing better than the gift of fiscal responsibility. Hot Rates this week 30 year 4.125% 15 year 3.375% 10 year arm (30 year amortization) 3.375%.........new the all-time low 5 year Jumbo Arm 3.125%
Posted on: Wed, 06 Nov 2013 16:13:31 +0000