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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
Any extra principal payments applied to your mortgage will make a difference in the end. Paying a Little Extra Toward Your Mortgage Can Make a Big Difference By Britt Erica Tunick If you own a home, mortgage payments are most likely part of your monthly bills and are something you’ll be dealing with for up to the next 30 years of your life. But traditional monthly payments are not your only option. Since most people get paid bi-weekly, many banks and mortgage providers have set up bi-weekly mortgage payment options. Under these plans, a traditional monthly mortgage payment is broken into two, so you are paying half of your mortgage every time you get paid. The idea of paying your mortgage twice a month may not sound appealing, but it has its benefits. Because there are 26 two-week periods in any year, compared with 12 traditional monthly mortgage payments, paying a mortgage every two weeks results in a full extra mortgage payments each calendar year money applied solely to the principal of your loan and not the interest portion. That may not seem like much, but over the course of a traditional 30 year fixed income loan, making bi-weekly payments will not only significantly lower the overall amount you’ll wind up repaying your bank or mortgage provider, but will knock roughly five years off the time it takes to pay off your loan. One of the appealing parts of bi-weekly mortgage payments is that such programs use automated payments, where banks will simply remove half of your mortgage from your pre-determined checking or savings account each month on a pre-determined day. On the plus side, this means you don’t have to think about making these payments yourself. But if you’re not someone who is good with money, or if you keep your accounts very low, such plans may not be good for you if there is a risk that your account will ever lack sufficient funding for your payments. Of course, bi-weekly payments are not necessarily for everyone especially if an extra mortgage payment each year is something you can’t afford. But that doesn’t mean you can’t still start chipping away at the amount you’ll pay back for your mortgage. Even without bi-weekly payments, any extra principal applied to your mortgage will make a difference in the end. So even if you can only afford an extra $100 a month toward your mortgage, making these payments is worth it and is something you can automate yourself by setting up electronic payments through your bank account to your mortgage provider. Just be sure to indicate on any additional payments you make that the money you are sending is to be applied solely to the principal of your loan, and not the interest. For those who can afford bi-monthly payments it is still important to look into the specifics of the bi-weekly plan offered by your mortgage provider. In some cases, such programs come with hefty fees that may not be worth the cost and may make setting up one extra payment each year more attractive. Determining whether extra payments are worth it for you can be fairly easy, as there are a number of mortgage calculators available online these days that will calculate how much you will save and how many years you can knock off your mortgage by inputting how much extra you want to pay each year. Following is one such calculator is available from Bankrate.com: http://www.bankrate.com/partners/sem/mortgage-calculator-rates-tl.aspx?ec_id=m1027724&s_kwcid=AL!1325!3!41195874008!e!!g!!mortgage%20calculator&ef_id=Uym-2QAAAKmUP3Jv:20140731211750:s |
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