The Beneficial Bi-Weekly Rapid Reap Mortgage Choice

By: Carolyn Capalbo
Submitted: 2008-09-04 14:03:57
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Many of us don't get the best value for our mortgage money. For most of us, mortgages take the majority of our wages; for this reason we need to shop around for the best deal and many of us don't.

The usual scenario is that we go into a bank, ask how much the rate and repayments will be to borrow a certain amount of cash to buy a house over a certain number of years.

The bank's rate will fluctuate as they base their calculations on the current bank rate. However, a fixed rate will lock your rate in for a set term, once you and the bank have agreed.

The rate will also vary slightly depending on the length of the term i.e. a one year, three year or five year term usually offer minimal differences in their rate.

Most of us do not realize, and are not told, (why?) that we could save ourselves at least ten per cent of our total interest costs according to the type of mortgage repayment method that we choose.

Since many of us have never been offered this choice, we need to understand a little more about mortgage repayments to see if we can aspire to saving ourselves $16,000 in interest payments over a $100,000 mortgage. That is alot of your cash going into the bank's pocket instead of yours.

When we buy a home with a standard mortgage, we end up paying approximately double for it - depending on terms, interest rates etc. For instance, to borrow $100,000 at 5.75% interest rate amortized over a twenty five year period, we may pay back over $187,000. This is because the 'fee or interest ' to borrow $100,000 for all that time has cost us $87,000. Fair enough - maybe.

We pay this back at the rate of $625.00 per month for 25 years. This makes sense for those of us who get paid monthly i.e. one paycheck at the end of each calendar month, a calendar month being approximately four weeks plus two days. However, many of us in North America get paid every two weeks i.e. bi-weekly.

Bi-weekly pay means that we do not receive 12 paychecks a year as we would if we were paid monthly, neither do we get double that (24 paychecks per year.) We actually get a pay check 26 times a year. This is because there are 52 weeks in the year, and if you split this into two weekly pay periods - they number 26.

If we paid our mortgage on a bi-weekly repayment schedule, we would be making a payment every two weeks instead of one payment every month. Therefore, we would be paying the equivalent of an extra one month's installment a year - every year. This would pay off our mortgage more quickly which would equal less interest, the savings of which should go into our pockets.

Here is an example using the same $100,000 and the same interest rate of 5.75% amortized over the same 25 years. Instead of paying $625 per calendar month, as above, we will be paying $312.52 (half of $625) per every two weeks.

The bank could then calculate that our loan will be paid off in 21.1 years; an amortization period of 21.1 years (instead of 25). This would mean that we will only be charged $71,300 interest. This means that we will be saving $16,397 for our own pockets AND finishing paying for our home five years earlier.

You just need to take two steps to benefit from reading this: Make the magic request to your Bank Manager for: Bi-Weekly Rapid Mortgage Repayments and get bigger pockets!

Article source: Expert Articles