Question: I am interested in purchasing a home and a friend of mine told me to look into bi-weekly home mortgages. Could you please explain to me the advantage of this loan over a traditional monthly mortgage?
Answer: Recently banks have come up with creative ideas to help the consumer pay their mortgage on a bi-weekly basis instead of the traditional once a month method. Through this method of payment, you can pay off your home in less time with less money. By simply paying half your monthly payments every two weeks, you will eliminate seven to nine years of an average thirty year loan. You will earn equity in your home faster because more of your payment is being applied to the principal of the loan instead of the interest. At the same time, making bi-weekly payments of one half your monthly payment will result in paying an additional monthly payment amount each year, which will result in a greater savings over the life of the loan. Your lender, interest rate, escrow payments, etc. all remain the same. If you have the discipline to budget your money and have a desire to pay off your loan in a shorter period of time, bi-weekly payment plans on your new or existing mortgage can be a tremendous benefit.
Example: A comparison chart of a typical lenders’ Monthly Schedule to the Bi-Weekly Schedule. Terms used: 30 year loan $110,000 @ $1,000 monthly payment.
|Payment||Years to Pay||Interest Saved|
To submit your question to DMCC, please write to: email@example.com and in the subject line write, Ask DMCC