Some people get a 30 year mortgage with the intentions of paying if off earlier but the time just never rolls around for that extra payment or principal curtailment because of added housing expense for something else. It is not that hard a thing to do if one makes the decision, follows through and more than likely you will never miss the extra money. Let's just say; don't eat out on Friday night and multiply it by four and you've got an extra amount to put on the principal balance of your mortgage loan. Sounds hard? It really isn't just takes a little effort to deny yourself a little something at the present and give yourself an exciting moment when you realize that you have 25 year not 30, remaining on your mortgage. Of course the more you pay the shorter your maturity will become.
Not only does this help pay your loan off early, it can help you get rid of the mortgage insurance premium (MI) quicker, if your loan to value was greater than 80 percent to begin with. It also will grant you more equity in your home and more profit in your pocket should you need to sell or move. It also stands true for 15, 20, and 25 year amortization periods.
As we know not everyone intends to stay in their current home for 30 years or even 15 years. At any rate; the more equity you have in your home, the better off you are and in our current housing market; this will shield you should the value of your home decline like so many in the past two to three years.
Way's to make it Happen!
Bi-Weekly Mortgage Payment:
A bi-weekly mortgage allows you the ability to pay your payment every two weeks. Some banks do not offer a bi-weekly mortgage up front, but will invite you at some point to enjoy the benefit of paying your payment bi-weekly. *not all banks do this, but you can check with your servicer. This is an advantage for you to payoff your loan approximately 6 years early.
Instead of making 12 payment yearly, you are making 26 payments which actually is making 13 payments instead of 12. It is argued that you can reap the same benefits by making an extra principal and interest payment during the year. You CANNOT skip a payment if you have made an extra payment and it went to the principal of your loan. The payments are due once monthly; you can pay your payment ahead of time and get ahead, but you never skip a payment from your statement or your coupon book. This would indeed get you into credit issues.
Example: $250,000 mortgage principal - 30 years amortization - 6.5% interest rate
Monthly payment: $1,580.17 Bi-Weekly paymkent $790.09
Pay-off date: 12/01/2039 Pay-off date: 01/01/2034
Time saved: 5 years 11 months
Interest paid: $318,816.22 Interest paid: $245,383.31 =
Total Interest Savings of 73,477.91
Normally bi-weekly payments are deducted from your checking or savings account every two weeks and is a requirement to obtain the benefit of making bi-weekly payments. There may be some fees and you might have to pay an additional payment upfront. Servicers have different guidelines and requirements. Check with your lender to see if they offer this option.
The benefit to you initially will depend upon the upfront charges; if any and your current financial situation. This is neither recommended nor discouraged; it is only an option that one may choose.
A Principal Curtailment
Not eveyone has the ability to afford a lump sum principal curtailment to their mortgage. But some do, so therefore I will explain this as well.
A principal curtailment can actually be any amount over and above your principal and interest payment or it can be a larger principal payment. You can, as mentioned above pay your payment a month or two ahead of the regularly scheduled payment, but in doing so, you never skip a payment. You can make a habit of payment an extra $100 toward the principal balance or for instance if you have saved some extra money and want to reduce the principal of your loan you by $5000, you may do so at any times. Unless of course you have a pre-payment penalty clause which restricts this. In general, Agency loans (Fannie Mae/Freddie Mac) do not carry a pre-payment penalty). You should check your note and mortgage for pre-payment clauses.
Paying extra curtailments on your loan does not change your regularly scheduled payment or payment amount. This can only be done by a modification or refinance of the principal balance over the remaining term.
Whatever you decide to do concerning the above; always make sure that you specify the extra money should go to the principal balance of your loan and not get place in escrow or something else by mistake.
http://hubpages.com/hub/paymortgage-off-early
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