What
about splitting my mortgage in two and paying
bi-weekly?
A:
Some
people set on paying off their home loan
early and reducing interest charges opt
for a biweekly mortgage. Monthly payments
are divided in half, payable every two weeks.
Because
there are 52 weeks in a year, the program
results in 26 half-payments, or the equivalent
of 13 monthly payments per year instead
of 12. Using the biweekly payment system,
a homeowner with a $70,000, 30-year biweekly
mortgage at 10 percent interest could
save $60,000 in interest and pay off the
balance in less than 21 years.
Q:
What
are the benefits of pre-paying the mortgage?
A:
By
making additional payments that go toward
the principal balance, you can save thousands
of dollars and shave years off the length
of your loan.
Principal
payments over and above the minimum monthly
amount required by the terms of the mortgage
constitute partial prepayment of a mortgage.
Each mortgage will have terms describing
how and when prepayment may occur. Refer
to the note to see if there is any penalty
incurred for prepayment.
The
total savings potential also depends on
how long you want to stay in the house.
Borrowers who plan to move in the near
future should not expect to realize as
significant a savings as people who pay
ahead of schedule until they own the home
free and clear.
Check
with your lender, who should be able to
provide specific answers as to how such
a prepayment plan will shorten the life
of the loan and what kind of interest
savings can be expected.
Copyright
2006 Inman News Features
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