First, Lets talk about the most common mortgages a 30-year term, this requires 360 monthly payments, while a 15-year term requires 180 payments. Many lenders, however, offer special loan repayment programs that promise to pay off the balance before term, without imposing much of an added burden on the borrower. Lets discuss a few options.
Bi-Weekly Payment Plans
On a Bi-Weekly payment plan, the monthly payment is split into two pieces of equal size, one due on the 15th of the month and the other on the first. While the borrower makes 24 payments a year instead of 12, They add to the same total. However, Lenders credit half of a payment on the 15th to the balance and on the 1st, This reduces the interest due on the first of each month
While the reduction in interest shortens the period to payoff, On a 30-year mortgages with a rate of 4.125% a Bi-Weekly payment would reduce your mortgage term by approximately 50 months and provide interest savings of $27,587. This is based on a mortgage amount of $175,000 dollars.
This is a great option if you could afford to make a payment twice a month and it is convenient. In the current market conditions while interest rates are low, this option is worth it. If interest rates would rise from their current levels, the years of reduction of term becomes less and less of a benefit. Mainly, because the majority of interest paid on a mortgage is in the beginning of the amortization period.
Roll-Your-Own Extra Payment Plans
You may like the idea of accelerating the payoff by the privilege of making extra payments on your own. By increasing your monthly payment by 1/12, it will pay off in about the same time as a standard biweekly.
The major difference between a plan administered by a lender and one administered by yourself is that the first is mandatory, providing a discipline that some individuals may value. Doing it yourself means that you don’t have to do it, which is an advantage to some but a drawback to others. Play around with our calculators below to see how it works.
<Biweekly Payments Applied Monthly