![]() 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. Our Bi-Weekly Mortgage Calculator enables you to quantify your savings by showing you the earlier payoff date and lower total interest expense.Your Results in Plain English ( Switch to Financial Analysis) ![]() For example, depending on the interest rate, a bi-weekly mortgage is generally four-to-five years shorter than a monthly 30 year mortgage, which means you save yourself up to five years in mortgage payments. Making an extra payment enables you to pay down your mortgage balance faster, or accelerate your mortgage, which reduces the length of your mortgage and saves you thousands of dollars in interest expense over the life of your loan. Second, because 26 bi-weekly mortgage payments equals 13 monthly mortgage payments you effectively make one extra payment each year with a bi-weekly mortgages as compared to the twelve payments you make with a standard monthly mortgage. First, true bi-weekly mortgages amortize every two weeks, which means the principal balance is reduced and the required interest payment is calculated every two weeks instead of monthly. ![]() A bi-weekly mortgage pays down your mortgage faster than a monthly mortgage for two reasons. ![]()
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