In the recent months many people have asked me the following questions:
"How can I pay off my mortgage faster?"
"How can I save interest money?"
"How can I stop paying monthly mortgage insurance (PMI)?"
"How can I lower my interest rate if I can't refinance?"
"How can I lower my interest rate if I can't refinance?"
"How can I get a mortgage with a 5 or 20 year term?"
The answer to all of these questions is - Biweekly Payments.
How are Biweekly Payments different from what you are doing now?
Currently you probably pay your mortgage on the first of the month. With Biweekly Payments your mortgage payment is cut in half and pulled from your bank account twice a month.
How does this help you?
Each year most people have two months of three pay periods. Each time the third pay period comes around, half your monthly mortgage payment is pulled from your bank account. This results in one extra mortgage payment per year going towards the principal.
How much money can it save you and how can it help cancel PMI?
On a $100,000 mortgage you can earn up to $4,000 extra equity in your home after five years. This means if you sell your home after five years that is more money in your pocket!
Many homeowners are eligible to cancel PMI when their loan to value (how much you owe compared to how much your house is worth) is down to 80%. By paying extra to the principal you can expedite this process of building equity and save yourself from paying that pesky monthly mortgage insurance.
How does it lower your interest rate?
By paying extra towards the principal there is less money for which the interest has to capitalize. This means that the rate of interest you are paying will naturally be lower. Many people who don't have good enough credit or enough equity to refinance are taking advantage of Biweekly Payments to reach their ideal rate.
How can you shorten your mortgage term without getting a new loan?
By adjusting the payment amount you can set your own term. At the end of that term that you have decided your mortgage will be paid off. If at anytime you need to change the payment amounts it can easily be done.
What are the positives?
No credit check required. No income requirement. If you move, simply change your address and loan information for no fee. The money is automatically drafted from your bank account so there is no chance you'll forget to pay. There is no upfront enrollment fee, it is taken from your first extra pay period. Starting with your second extra pay, they will always go toward the principal.
It can be for ANY loan, not just mortgages. The same principles apply for car loans, bike loans, credit card payments, personal loans and monthly bills.
What are the negatives?
The bank won't be receiving all your extra interest money!
For those of you that like to see things in black and white - please take a moment to look over this sample amortization. *does require a pdf reader*
Feel free to drop me a comment below if you have any questions. I am more than happy to send you your own personalized Biweekly Payment scenario!
