MORTGAGE LENDERS IN SACRAMENTO EXPLAIN BI-WEEKLY PAYMENTS & PAYING MORTGAGES FASTER
Mortgage costs are a reality for most homeowners and can be quite stressful to think about with each month. Splitting up the monthly cost into two biweekly payments may seem a little more digestible. Many home mortgage companies offer their borrowers the option to pay their mortgage every two weeks instead of once a month. In theory, this should be straightforward and uncomplicated and mortgage lenders in Sacramento can explain how it’s done. This should reduce your balance on the loan more efficiently, ending up with less interest, while quickly building equity and paying off the home loan ahead of initial schedule. As you may anticipate, mortgage loan companies do not make it so easy.
HOW BIWEEKLY PAYMENTS ARE PROCESSED
Though it would make sense that each payment is processed as it comes in, mortgage loan companies actually hold the first payment and wait for teh second one to come in. So while you’re making two payments every month, it reaches the company as one large sum. This doesn’t have any benefit in decreasing interest accrual since the payments are applied as a single monthly contribution.
Though mortgage lenders in Sacramento hold onto the first payment and processes both payments as one, most mortgage loan groups, or third party companies, charge a fee for handling and delivering the payment. This means that you are paying an additional fee without much benefit.
BIWEEKLY PAYMENT BENEFITS
Though this all may seem very discouraging, there are good things to say about biweekly mortgage payment plans. Most people think of a month as four weeks and biweekly payments occurring twice every month. This isn’t exactly true. Since there are 52 weeks in a year, there are 26 biweekly periods, or 13 months. This means that making biweekly payments ends up completing one extra month of mortgage payments. While one extra payment may not seem like much, when you consider the entire life of the loan, it can result in big savings in interest.
Everyone wants to save interest and pay off their mortgage as quickly as possible. While mortgage-sponsored biweekly payment plans may not be the best fit, there are multiple ways to make additional payments outside of a structured biweekly plan. Alternative payment options include:
- Making larger one month payments – Whenever you have a little extra cash one month, put it towards your mortgage. Paying an additional $100.00 a month on a $100,000.00 30 year fixed rate mortgage with 4% interest can end up saving over $20,000 in interest and cutting off 8 years of payments.
- Create your payment plan – Instead of creating an official biweekly payment plan with some mortgage lenders in Sacramento, who will just charge an additional processing fee, pay every two weeks on your own. This will still end up with you paying that extra month of contributions each year, resulting in the same savings and no fee.
- Make an extra payment – Similar to just paying half your monthly fee every two weeks, you could just make one extra lump payment a year, having the same effect of a biweekly plan but again without the fee. Any time you have a large sum of money, for example from a gift, tax return, make an extra monthly payment on your mortgage. Another method is to set up a savings account and put 1/12 of a mortgage payment into that account every month. This way you save up for that extra lump payment little by little instead of coming up with it all at once.
THINGS TO LOOK OUT FOR
Make sure that your extra payments are contributing to the home loan principal and not the interest. As this has a much more significant effect on your interest accrual and the life of the mortgage. Paying off the principal allows you to decrease the actual size of your loan instead of just skimming off the top by paying the interest, which will just grow right back.
You should also review the legal terms of your home mortgage for any language describing a possible prepayment penalty. Contacting mortgage lenders in Sacramento is a good idea if you need help to determine what the best payment plan would be. A lot of mortgage plans have a clause that penalizes borrowers for paying off the loans early or paying extra on their loans. This is because if a borrower pays off the loan early, the lender doesn’t get as much interest as they were initially counting on. In order to compensate for this, they charge a “prepayment penalty.”
Mortgages are very complicated loan agreements that are tied to a very important aspect of any person’s life – their home. Be sure to speak to mortgage lenders in Sacramento specialist so you understand the terms of your loan and what options you have for paying it off early.
SPEAK TO MORTGAGE LENDERS IN SACRAMENTO ABOUT YOUR PAYMENT PLANS
The Sunrise Vista Mortgage team offers some of the lowest rates in California and with almost 20 years of experience, you can trust our mortgage lenders in Sacramento to make the loan process as simple as possible for you. Give us a call at (916) 729-2000.