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Biweekly
Mortgages
You may have heard people, especially
mortgage lenders, extolling the virtues of biweekly payments, saying
that you can save thousands of dollars and take 5-7 years off your
mortgage--and then offering to set up a biweekly plan for you for as
little as $400. But you don't have to spend $400 to begin saving
money and time on your mortgage. In fact, you don't have to spend
anything at all! You can set up a money-saving mortgage payment plan
yourself--easily and at no extra cost.
The key is to look carefully at the
fine print in many biweekly plans. You find that even though you'd
be making biweekly payments, the lender may only post them to your
account on a monthly basis, which means that you wouldn't be saving
anything on interest, because mortgage interest is paid in arrears
(as opposed to rent payments, which are paid in advance). Your only
real savings would be in the fact that you'd be making the
equivalent of one extra payment a year. That’s a good thing, of
course, but you don't need to pay someone $400-500, possible monthly
maintenance fees, to be able to accomplish the same
results.
Here’s how biweekly payments save time
and money: By making biweekly payments, you actually end up making
an extra monthly payment each year. Over the course of a year, you'd
make 26 payments (one every other week for 52 weeks), which is the
same as making 13 monthly payments. Making one extra payment per
year will shorten the life of your loan and save you thousands of
dollars.
But you don't have to make biweekly
payments to obtain those savings. Here are a couple examples of how
you can save big money, using the same basic idea:
If you get paid every two weeks, divide
your monthly principal and interest payment in half and then send
your lender a check for that amount during those months in which you
receive three paychecks. Just sending in those two extra checks will
be the equivalent of one extra payment a year.
If you don't want to send lump checks,
you can get the same results by dividing your monthly principal and
interest payment by twelve and then adding that extra amount to your
payment every month. Normally, that figure won't put too much extra
strain on your budget, and it will add an extra mortgage payment to
your loan every year.
You really can save significant amounts
of money and shorten the life of your loan by making extra payments,
but you definitely don't have to pay a lender $400-500 to do it.
Making those extra payments is easy to do yourself, and at no extra
charge--which is always a good thing.
© Copyright 2005 Jeanette J.
Fisher All rights reserved.
Professor Jeanette Fisher is the author
of "Doghouse to Dollhouse for Dollars," "Credit Help! Get the Credit
You Need to Buy Real Estate," and other books. Real estate financing
questions? Visit the new Real Estate Credit Help Center for
articles, Credit Tips ezine, and blog: http://www.recredithelp.com
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