Anyone who takes on a home loan wants to find a way to reduce the interest rate. The good news is there are ways you can do it, even after the finalizing terms of the loan. One such method is a bi weekly mortgage plan.
A bi weekly mortgage plan, usually offered by the lender as an alternative, involves paying installments every two weeks instead of paying monthly. This results in 26 half payments throughout the course of a year, or the equivalent of 13 full payments. This is one entire month’s payment more than if paid out in the standard monthly schedule.
That extra months payment will go towards reducing the principal of the loan, reducing future interest. When the principal loan and interest components begin to drop, the time it takes to payback your loan will decrease over the course of a few years.
For example, a $150,000 mortgage for 30 years at an interest of 6% will result in a monthly payment of $899.33. The overall interest during the lifetime of the loan will amount to $173,757. However, under the bi weekly mortgage plan, the payments will be $449.67 a week, but the overall interest paid drops to $135,294, with the term of the loan lessened to 24 years from 30.
Calculate how much of a difference it would make to your loan. Most sellers charge an extra fee for the bi weekly plan; however, it is small in comparison to the amount you can save over the lifetime of your loan.