By Joyce Mann,
If you currently hold a mortgage on your home, creating your own biweekly mortgage might be a great way for saving money, not to mention paying down your mortgage early. And we all love saving money, right?
But before planning that dream vacation, you need to understand what a biweekly mortgage is; how a biweekly mortgage differs from a traditional 30-year-mortgage, and then you must learn how to execute the change from a traditional to a biweekly mortgage. And when I say “execute” I’m referring to the transition — Please don’t shoot the Monopoly banker!
Step 1 There’s cash in them thar homes!
Learn what a biweekly mortgage IS. Simply, a biweekly mortgage means making one-half of your regular monthly mortgage payment every two weeks, i.e. one-half of the principal as well as one-half of the interest. Example: Say your monthly mortgage payment, including principal and interest, is $ 1000. With a biweekly mortgage, you make a payment of half that, or $ 500, every two weeks.
Step 2
Let’s see. Thirty days hath September… . Learn what a biweekly mortgage ISN’T. A lot of folks mistakenly think the term biweekly means the same as twice a month. THIS IS NOT TRUE. The math is simple: There are 52 weeks in a year; if you make a payment every two weeks, that results in 26 payments in one year. There are 12 months in a year; if you make a payment twice a month, that results in 24 payments in one year. You therefore are two payments short. So it’s important to remember that within any given calendar year, there will be two months where you need to make three payments — not two — to reach the annual goal of 26 payments. Savvy?
Step 3
Do not pass Go. Go directly to jail, bad banker.
3.Ignore the internet scams and greedy loan originators. Lenders, even legitimate ones, come up with clever-sounding offers hoping to corral you into converting your current mortgage to a biweekly one. They do this for one reason: to get you to part with a few hundred dollars in fees.
Step 4
Sorry, Merlin. No wizardry required.
4.Create your biweekly mortgage. All you have to do is take out your checkbook and every 14 days send in a check for one-half of your regular monthly mortgage payment. It’s that simple.
Step 5
Hunt down those savings.
Reap the rewards. Here’s the fun part, seeing how much money you’ll be saving. Let’s say you just signed on the dotted line for a $ 100,000, 30-year-mortgage. You’re paying 5% interest. If you make the standard payments, you’ll be paying about $ 587 a month in interest and principal for the next 30 years. By the end of that time, you will have paid $ 93,000 in interest. Ouch!
Instead, if you create your biweekly mortgage from the start, here are the results: You’ll be paying $ 268 every two weeks. Your mortgage will be paid off in a little over 25 years, and the interest paid will be $ 76,000. Ok, that’s still a major “ouch” but $ 17,000 less than the first ouch
Step 6
Stretch those dollars.
Relish the flexibility of your biweekly mortgage. Here’s an important point. Since your biweekly mortgage is of your own creation, you are not beholden to any bank if you can’t always keep up with the every-two-weeks regimen. As long as you honor the terms of your original mortgage agreement, you’re in the clear.
Step 7 With a biweekly mortgage, life is a beach.
Enjoy your dream vacation. And don’t forget to pass Go and collect $ 200.
Before creating your own biweekly mortgage, you must check with your lending institution to be certain there are no penalties for making early payments on principal. Laws also vary by state.
The numbers used in the above examples are rounded off. Escrow and other monies not included in the calculations.