August 29th, 2016 | Bi-Weekly Mortgages
Over the years, we have heard about and been asked about Bi-Weekly Mortgage payments. Granted, all of us would love to have that debt on our home be gone faster than not, so today we're going to explore Part 1 of our 3-Part Series on Bi-Weekly Mortgage Payments. In doing so, we're highlighting journalist Dan Green in a recent article in The Mortgage Report issue of 8/27/2016.
Should you have any questions, always feel free to give us a call at 388-1588. We're here to help!
In definition, a biweekly mortgage is a mortgage for which one-half payment is made every other week instead of a full payment made once per month. The homeowner makes 13 payments per year instead of the usual twelve, which accelerates the loan's payoff schedule by approximately 6 years.
Do Bi-Weekly Mortgages Work As Advertised?
With today's mortgage rates low, bi-weekly mortgage payments are advertised as a cheaper way to own your home faster. But do bi-weekly and other "extra payment" mortgage programs actually work?
Is it worth it to sign up for a program committing you to one extra payment per year on your mortgage? Or, is it cheaper to refinance into a loan with low costs? Understanding your options is the first way to make sure you're making a good choice.
What is the difference in a Bi-Weekly Mortgage and a "Regular" Mortgage?
The typical mortgage asks for one payment per month, which equals 12 payments per year. With a 30-year fixed rate mortgage, therefore, 360 payments are required to pay the loan in full.
Each mortgage payment is split into two parts: a principal portion and an interest portion. The principal portion is applied to the amount that you owe the bank. This diminishes your remaining loan balance.
The interest portion is your cost for borrowing from the Mortgage Company or Bank.
As your loan moves toward maturity, the balance between your mortgage payments' principal-and-interest shifts. In the early years, a significant portion of your payment is comprised of interest and just a small part goes to paying down your balance.
It's not until later in your loan's lifecycle does the principal portion of the payment start to grow.
This repayment schedule is the reason why after 5 years or so, your loan's balance has been barely paid down. The technical term for this repayment schedule is amortization.
In Part 2 we'll show you the difference in setting up your own "pay it off sooner" schedule vs. how many payments a Bi-Weeky Mortgage saves and decide which is right for you!