we are new to being home owners. country wide is insisting that we go to bi weekly payments< for a fee> so that it will knock time off the term...i asked for more info and they sent us a letter that made no sense. can someone explain how this would benefit us? thanks in advance!
2007-09-25 01:09:24 · 9 answers · asked by JuJu 1 in Business & Finance ➔ Renting & Real Estate
Making payments bi-weekly cuts the interest over the term of the loan. Each month you are saving one half of one payment's interest for at least 2 weeks. This seems trivial, but it adds up over 20 years. You are also making an extra payment each year as there are 26 bi-weekly payments as opposed to 12 monthly payments. (26 bi-weekly payments is equivalent to 13 monthly payments, thus one extra payment not two per year).
Be sure that you are making your payments directly to your lender. There are many third party companies that offer bi-weekly payment plans for a fee and do not remit the payments to your mortgage company bi-weekly. You can not be required to use a bi-weekly payment plan if your original note calls for monthly payments. Its a contract, they cannot change it unilaterally.
2007-09-25 01:16:28 · answer #1 · answered by Anonymous · 2⤊ 0⤋
Have you ever heard of the 50/25 Rule? With a conventioanl mortgage, 50% of your mortgage will be paid off in the 25th year, NOT year 15!!!
With the the comapny I use, as you make your payments the loan balance is calculated every day. This is simple interest. Normally, banks use scheduled interest, any extra payment comes off the back end and the balance is not recalculated, because it has been pre-planned. Most banks and mortgage lenders,charge to do bi weekly payments.
The benefit for you,is that your mortgage will be paid off in about 20-21 years. The 13th payment is ALL principal. My wife and I have a bi-weekly, we have had it less than a year and have paid about 4,000 to principal. So it will help us when we refinance- we have lowered what we owe and have more in principal.
Banks and lenders have ingrained in us to shop "rate and payment." Consider your loans under terms of how long will I be in debt and how much will I pay back? These are the questions to ask. Pay house off faster, so you can put more aside for retirement.
2007-09-25 01:52:31 · answer #2 · answered by Mark S 6 · 0⤊ 0⤋
Sure, if you make 26 half payments on the bi-weekly payments then you make the equivalent of 13 regular payments in the course of the year. That extra mortgage payment is applied to your principal, which means you pay your loan off faster.
Pre paying means you're not paying interest on that amount for the rest of your mortgage and it will be paid off faster. In a nut shell those are your benefits.
It doesn't seem like they should be forcing you to pay an extra fee for this service, especially since you can just send in extra payments yourself for free.
2007-09-25 05:34:15 · answer #3 · answered by matzael 3 · 0⤊ 0⤋
Jane's got it perfect but I would question why they are insisting and why
If this is your first home purchase you may be at the mercy of the mortgage company that pre-approved you. However, I wouldn't recommend going into anything too long term right now unless they give you a really great rate. When it comes time to refinance in 3 years, you'll be in a much better position to do some bargaining. You'll have had time to read up and get more knowledgeable so they won't be able to bully you.
It's amazing how friendly banks or mortgage companies get after you've shopped around a little and say, "Oh that's the best you can do? I guess I'll just go to so & so because they said they'd give me 2% less."
Good luck.
2007-09-25 01:24:56 · answer #4 · answered by Nic 6 · 1⤊ 0⤋
Because there are 52 weeks in the year, you will make payments 26 times a year which is like 2 extra payments per year. If you go by the 12 month calendar u are paying 12 times a year, if u paid twice each month u would pay 24 times a year, by doing them bi-weekly you get in 2 extra payments and that helps pay off your loan faster because more money is being applied toward principle. It works and it saves you money in the long run.
2007-09-25 01:14:58 · answer #5 · answered by Jaye 3 · 1⤊ 1⤋
I'd give the 10 to Ken. Odd though that any mortgage company wants more paperwork to handle; but with foreclosures and defaults at an all time high, perhaps they are actually offering a compassionate way for you to adjust your budgeting and still not only pay them but save interest dollars as well.
Steven Wolf
2007-09-26 02:30:39 · answer #6 · answered by DIY Doc 7 · 0⤊ 0⤋
I am not sure how it benefits you, We pay annually, as it costs more to pay bi weekly,
Eg. if you pay via check it costs 8 dollars per check,
, If you pay online there is a fee incurred with that as well.
so over the period of a year you spend nearly 100 extra dollars in fees.
Perhaps some one else has better info and advice.
Meg
2007-09-25 01:17:10 · answer #7 · answered by Anonymous · 0⤊ 2⤋
they cant force you as you started with monthly payments- all you need to do is send a payment every two weeks for half your mortgage if you want- at the end of every year it will be 13 payments instead of 12
2007-09-25 02:12:45 · answer #8 · answered by mommy to be of 3 3 · 0⤊ 1⤋
Interest is tax deductible, as long as you deduct your interest this will not help you at all. It will pay your house off sooner. You can pay extra on your monthly payment and apply it to your principal and do the same.
2007-09-25 01:59:45 · answer #9 · answered by Dan S 4 · 0⤊ 1⤋