Q:
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.
