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The Mortgage Secret That Could Save You Thousands

Written By: Jaymi Naciri
Sunday, August 09, 2020

So whats the big secret? Paying your mortgage twice per month.nbsp;

We know what youre thinking: How does paying double save me money? Let us explain. Paying twice per month doesnt mean making the entire monthly payment twice. It means paying half of the total every two weeks.nbsp;

The practice is called bi-weekly mortgage payments, a strategy where mortgage loan customers pay their mortgage loan every two weeks, instead of once a month, said Experian. The idea is to chop down your mortgage payment more quickly, and in the process, lower the amount of interest you pay on your mortgage overall.

So how does paying every two weeks cut down on your total amount and save you big time? When you pay monthly, you make 12 payments per year. Pay every two weeks, and you actually end up making 13 full payments. And that one extra payment is directed toward the loans principal.nbsp;

Since the homeowner is reducing the amount of the loan balance quicker, they are also reducing the amount of interest charged over the life of the loan, said MortgageCalculator.org.

What to ask your lender

Before you start making that extra payment, youll want to make sure its allowed. Some lenders either dont facilitate the process or dont credit the payment more than one time per month. Many lenders decide to hold partial payments in an account until the rest of it is received, said MortgageCalculator.org.

Other companies may allow bi-weekly payments but charge a fee. Ra>

How much can you save?

This scenario illustrates the type of long-term savings that make bi-weekly payments attractive. Say you have anbsp;30-year fixed-rate mortgagenbsp;for 250,000 with a 4 percent interest rate. Your monthly payment would be about 1,194, and the total interest paid over the life of the loan would be 179,673, said Bankrate. In the same scenario, using anbsp;biweekly mortgage calculator, your total interest paid over the life of the loan on a biweekly plan is 150,450.40. That means youd save more than 29,000, and pay off your loan in 25 years instead of 30.

Another alternative

If making a payment every two weeks isnt feasible, consider a lump sum payment once a year. Maybe you get a Christmas bonus, a merit bonus, or a tax refund. Using this windfall and allocating the equivalent of one mortgage payment would make a huge dent in your principal. By paying one extra payment of 1,285.33 each year on a 25-year loan of 250,000 with interest at 3.75...the loan amortization schedule with extra payments shows that you would repay the loan 2 years and 11 months earlier and save 17,381.35 in interest, said Interest.com.

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