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A: Some people set on paying off their home loan early and reducing interest charges opt for a biweekly mortgage. Monthly payments are divided in half, payable every two weeks.
Because there are 52 weeks in a year, the program results in 26 half-payments, or the equivalent of 13 monthly payments per year instead of 12. Using the biweekly payment system, a homeowner with a $70,000, 30-year biweekly mortgage at 10 percent interest could save $60,000 in interest and pay off the balance in less than 21 years.
Q: What are the benefits of pre-paying the mortgage?
A: By making additional payments that go toward the principal balance, you can save thousands of dollars and shave years off the length of your loan.
Principal payments over and above the minimum monthly amount required by the terms of the mortgage constitute partial prepayment of a mortgage. Each mortgage will have terms describing how and when prepayment may occur. Refer to the note to see if there is any penalty incurred for prepayment.
The total savings potential also depends on how long you want to stay in the house. Borrowers who plan to move in the near future should not expect to realize as significant a savings as people who pay ahead of schedule until they own the home free and clear.
Check with your lender, who should be able to provide specific answers as to how such a prepayment plan will shorten the life of the loan and what kind of interest savings can be expected.
Copyright 1999 Inman News Features