“This week I want to talk about an incredible way to pay that mortgage that you have. This will not cause you to pay more money, but will in fact save you money and lower the years of the burden! This knowledge has been derived from my Personal Finance course here with Professor Thomas Clark and from reading a book that I recommend to everyone, The Automatic Millionaire by David Bach.””
This week I want to talk about an incredible way to pay that mortgage that you have. This will not cause you to pay more money, but will in fact save you money and lower the years of the burden! This knowledge has been derived from my Personal Finance course here with Professor Thomas Clark and from reading a book that I recommend to everyone, The Automatic Millionaire by David Bach.How can you pay less money for your mortgage and lower the years to pay and not have to pay more money? Answer: bi-weekly payments.What are bi-weekly payments you ask? To break it down to basic terms, it’s paying what you normally would pay in full once per month, but splitting that in half and paying every other week. Using a bi-weekly payment plan will allow you to pay less and shorten the number of years on the mortgage. How is this possible? Normally you would make 12 payments if you paid every month for one year, correct? On average, consumers are being paid bi-weekly (26x per year). By paying half your mortgage bi-weekly, every two weeks, you will end up making 26 total payments or 13 full payments in a given year. The funny thing is, you are not paying more money, and you actually end up paying thousands of dollars less in the long run, while lowering the amount of years on your mortgage. For example, a $250,000 mortgage with a life of 30 years at a 5.5 percent interest rate. Now normally one would have to pay per month on a mortgage with these characteristics of around $1,419.47. Keeping your payments on one full payment per month, you will pay your mortgage off in 30 years and would have paid a total of around $510,000 for that home, ouch! By making Bi weekly payments of $709.74, you pay your mortgage off in around 24 years and pay a total of around $460,000 or so. A saving of $50,000 without even having to spend anything more. How do you set up a bi-weekly payment plan? Call the institution that is servicing your mortgage and ask if you can make half payments every two weeks. They normally dislike this, because simply put, they are losing on potentially more money from you as a home-owner. Most lenders may charge a one-time, minimal fee to set up this program. Consult your lender for this alternative. So all you homeowners – what are you waiting for? Save money, pay less and strive for financial freedom!
Lanny Berlingieri is a current MBA finance student and holds a bachelor’s degree in Accounting from the University of Akron. Berlingieri is involved in campus organizations Beta Alpha Psi, Accounting Association and Student Toastmaster.