what is the best way to pay off your house faster and why? bi weekly pymts or extra payments?

Answer 1

There is no magic and you do not need a special program.

The key is to reduce the loan principal with extra payments. Your mortgage may have restrictions to how much extra you can each month or each year. Check the details.

Each monthly payments is designed to pay the fees owed (if any; rarely will there be any unless you have been late), the interest owed and then the remaining pays the principal. Hence if you reduce the amount outstanding (the principal) then the following month and every month after that the interest you will need to pay is less. Hence each subsequent payment will need to pay slightly less interest and slightly more principal. Each month this will happen so it is like a snowball rolling down a hill. The principal payment gets bigger and you end up paying off the loan sooner.

One caution. Due make sure you have liquid savings for emergencies. 6-12 months of your income. If you are paying down the mortgage early and then need access to some cash it can be hard to get to it when needed.

A bi-weekly mortgage means you are paying slightly faster (every 2 weeks). The big difference comes from the fact that over a year you have paid slightly more than 13 months of payments. More or less 1 full payment will be used to reduce principal. That is all you gain with a bi-weekly system. You can just add principal to your monthly payment and achieve a very similar result.

Two suggestions:

1. Look at your budget and eliminate something that you do each week. Take the savings and add it to the mortgage payment. Each week remind yourself that you are saving just a little bit extra so you can take years off your mortgage.

If you want to make a bigger difference then consider a yard sale or selling items you do not want on ebay. Take the cash and pay down the mortgage. Assuming you are selling stuff you no longer want it will put the locked up value to much better use.

2. Consider a second job. Something seasonal or maybe part-time on a weekend. Any money you earn you throw at the mortgage. In the very early years of the mortgage an extra payment can save approximately 1 year off the full term. If you worked part time for a few months or a year and make a bit of money it might make a dramatic difference (depending on the loan balance you are starting with and what you can earn part time).

Bottom line. Check the loan documents to understand if you can make extra payments and how to do it. Second, anything that you pay now will save interest late. There is no magic other than increasing what you pay in principal.

Answer 2

Bi-weekly payments and extra payments are essentially the same thing. By making bi-weekly payments you are making one extra mortgage payment per year. If you can pay more than one extra payment per year, then you will pay it off even faster. Extra payments made earlier in the life of the loan (this month, for example, instead of next month) have an exponentially greater effect due to the way interest is calculated on a mortgage.

Rick
http://www.fairwaymortgagelending.com

Answer 3

I made an extra payment of just a $100 on my home and paid off a 20 year mortgage in 14 1/2 years

Answer 4

Kudos to you for wanting to do this!

Check your loan documents. Many lenders have made the bi-weekly payment difficult. And some will not credit you anything extra for paying half the payment early. They want you to actually sign up for a bi-weekly payment program which, of course, carries a fee. Can you say "rip off?"

Anyway, if that's the case, make extra payments to principal. That's still free.

Answer 5

Many companies actually charge you to go on their bi weekly payment plan and that is just silly. I suggest applying extra $$ to your principal every month.

Answer 6

Why would you want to pay off your house early?

Owning a home really does nothing for you financially. The real power of home ownership is leveraging your assets.

Consider that you have $100000 sittting in the equity of your home. How much money annually does that money make you? $0! Nothing.

Consider that you use $100000 for investment purposes. You have a loan out on your home for this money with an interest rate of 7%. You put these funds into an investment strategy that yields 10% over the course of a year. Now you have MADE 3% return on that investment!

Paying off your home is old school thinking. For your families benefit leverage the money and invest it in higher yield ventures. I personally invest in real estate and get over 100% return with my capital.

Remember homeownership is about leveraging your assets!