Monday, August 2, 2010

Lucky 13: What Most Mortgage Companies Don't Tell You

So, I own a home.

More accurately, I am paying a bank for the privilege of eventually owning it. Sort of like that MFA I'll actually own in 2028 or so.

But guess what? If I could break my monthly payment into two equal ones every two weeks, I could shave 3 years and $21,000 dollars off the bottom line.

Not chump change.

Since I am a verbal savant with virtually no math skills, I've gone to About.com for our example:

"Let’s say your current monthly mortgage payment is $1,000. Over the course of a year you will spend $12,000 on twelve payments. If you decided to make bi-weekly payments you can then make a $500 payment every two weeks. Seems like the same thing, right? Well, if you take $500 and multiply it by 26 payments you have $13,000 in total payments. And guess what? That extra $1,000 was applied directly to your principal, thus reducing how much you’ll spend on interest and will pay your mortgage off faster.

"To better understand the true savings, on a $100,000 30-year mortgage at 6.5%, you'll pay $127,544 in interest, plus the $100,000 principal, for a total of $227,544. Paying one-half of your regular monthly mortgage payment every two weeks will result in interest of $97,215, a savings of $30,329. Obviously, the larger your mortgage and higher your interest rate, the greater the savings."

There was one eensy problem for me, though. When I called my bank to get started, everything went great until we started picking dates. Seems you have to make both payments by the 15th of each month, and you must pick a day of the week--Monday through Friday--not a calendar day, like the 1st or 15th. So, some months you'll make three payments. Here at CB Headquarters, no can do.

Just like an engagement that falls apart when the real wedding day looms, my biweekly scheme was not to be.

But I'm doing the next-best thing: I'll add 1/12 of my mortgage into each monthly payment, so that by the end of each year I will have applied one extra payment directly to my principal.

And guess what? Every penny gets me more credit at piggymojo. Sweet.

So what are you waiting for? Use your own mortgage figures to see what you could save. And if you're still renting, hang onto your tiny storage space. I'll have posts for you anon.

2 comments:

  1. We still rent. Certain family members treat us like children because we rent--even though we have been married 14 years, have a kid, and are employed. I look forward to what you have to say about renting!

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  2. mapelba, I have noticed a possible thawing of the distinct bias toward home ownership in American culture...my thoughts are too many and too disorganized to speak to right here and now, but rest assured, this interests me greatly, and I got yer back! there are really good reasons to remain a renter, and as soon as i get my act together i'm going to be addressing this ... thanks for the love. check us tomorrow, when the amazing bunnies will appear once again xxoo

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