When you’re getting ready to purchase a home, part of the process involves choosing which mortgage payment option is best for your lifestyle. In most cases, you get a choice between monthly, semi-monthly, bi-weekly, accelerated bi-weekly, and weekly options. If your goal is to reach financial freedom as soon as possible, then bi-weekly accelerated mortgage payment is your best option. It’s a simple way to pay back your mortgage faster and without straining your budget. If you’re eager to learn more, check out our top 5 reasons why you should be switching to bi-weekly accelerated mortgage payments today.
One Extra Monthly Payment
With an accelerated bi-weekly payment plan you make a payment every two weeks, not just twice a month. That means you make a total of 26 payments per year, which is an extra 2 payments than you would normally pay with a semi-monthly plan.
Goes Against Your Principal
Your mortgage is split into two parts – the principal and the interest. In the initial stages of payment, the majority of the payments that you make go towards paying down the interest. And then at one point, a shift occurs and you start to pay more of the principal. Since your interest rate is calculated for the year, when you use accelerated bi-weekly payments, the 13th payment gets directly applied against your principal amount, not just your interest.
Reduces The Amortization Period
Choosing to pay your mortgage simply and more frequently won’t result in reducing your amortization schedule. This is because the lender takes the 12 months of payments and divides it by 52 to come up with the bi-weekly payments, or 26 to come up with the monthly payments. Only when you use an accelerated re-payment schedule can you reduce your amortization period. And how much you can save will depend entirely on your amortization length and type of mortgage you hold.
Saves You Money
When you use the accelerated bi-weekly payment method, you will be paying back your mortgage must faster. For example, if you hold a 25-year amortization it could save you approximately 4 years worth of payments. If you have the capacity to make two payments a month, it is definitely worth the savings.
Believe it or not, the bi-weekly plan payment can provide you with an easier way to budget your money. Most of us get paid bi-weekly, so instead of trying to budget so that you have enough money at the end of the month to cover your mortgage, you can pay the amount right after you get paid. This will make your monthly budgeting a breeze.
Switching to bi-weekly accelerated mortgage payments can save thousands of dollars on your mortgage. If this sounds like music to your ears, talk to us today at Financial Forum, we can help you make the change.