![]() Some services offer to set up bi-weekly payments for you. ![]() You will then need to find out if your lender will accept biweekly payments, or if there is a penalty for paying off your mortgage early. If you are already on an automatic payment plan, you will need to find out from your lender if you can cancel or change it. Unfortunately, switching may not be as simple as writing a check every two weeks. Precautions When Setting Up Biweekly Payment Plans Our example has a monthly payment of $1,073.64, so adding an extra $89.47 ($1,073.64/12) to principal each month will produce the same result. Simply add an extra 1/12 of a mortgage payment to your regular payment and apply it to principal. If your lender does not offer a bi-weekly option or charges for the service, you can do the same thing yourself for free. If using bi-weekly payments, the interest is only $150,977.71 saving you $35,533.86 over the life of the loan. So on the 30 year $200,000 loan at 5% example we have been using, the interest was $186,511.57 using monthly payments. At the end of the year you will have made 13 instead of 12 monthly payments. This essentially produces one extra payment a year since there are 26 two- week periods. You pay half of a mortgage payment every two weeks instead of the usual once monthly payment. So if at all possible, save up your 20% down payment to eliminate this drain on your finances.Īnother way to save money on your mortgage in addition to adding extra to your normal monthly payments is the bi-weekly payment option. Once the equity reaches 20% of the loan, the lender does not require PMI. It does nothing for you except put a hole in your pocket. This premium is usually rolled into your monthly payment and protects the lender in case you default. That means that on a $200,000 loan, you could be paying up to $2,000 a year for mortgage insurance. If the borrower do not put a 20% down payment on the house and obtain a conventional loan you must pay for this insurance premium which could be anywhere from 0.5% to 1% of the entire loan. Most mortgages require the home buyer purchase private mortgage insurance (PMI) to protect the lender from the risk of default. Mortgages originated before 2018 will remain grandfathered into the older limit & mortgage refinancing of homes which had the old limit will also retain the old limit on the new refi loan. The mortgage interest deductibility limit was also lowered from the interest on $1 million in debt to the interest on $750,000 in debt. The new tax law also caps the deductiblility of property taxes combined with either state income or sales tax at $10,000. ![]() Many homeowners will not pay enough mortgage interest, property taxes & local income tax to justify itemizing the expenses - so the above interest savings may not lead to income tax savings losses for many Americans. Before the standard deduction was increased 70% of Americans did not itemize their taxes. The 2018 tax bill increased the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly. Standard vs Itemized Income Tax Deductions While this will result in a loss of $4,948.12 in tax benefits, you will still save a total of $14,844.35 with the bi-weekly plan. As a result, you will pay only $121,893.23 in interest with the bi-weekly schedule rather than $141,685.69 with the standard payment plan. If you took out a $250000.00 loan with an interest rate of 3.250% and your federal tax rate is 25.000%, you can expect to pay $1,088.02 per month, while a bi-weekly payment plan will call for a payment of $544.01 every other week. With the standard plan, it would take you 30 years to repay the loan while a biweekly plan will take 26 years and 4 months. When you set up your mortgage payment repayment plan, you can choose between a standard repayment plan or a bi-weekly repayment plan. ![]() Your Results in Plain English ( Switch to Financial Analysis) ![]()
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