01/08/2016
GREAT OPTIONS FOR PAYING EXTRA ON MORTGAGE: There many theories and ideas that populate the media and internet.
One of the more popular ideas, is that of the bi-weekly mortgage payment. Instead of paying your full mortgage payment once a year, for a total of 12 payments. The bi-weekly program collects ½ of your regular payment every 2 weeks, which means you are making 26 half payments per year or 13 mortgage payments per year.
While for many, this program is a good discipline to pay off your mortgage sooner, as it would cut four years off the life of your loan if you stuck on a bi-weekly payment for the life of a 30 year loan, in my opinion, it's not the best option and the numbers back it up.
On a bi-weekly payment, you are making one extra payment per year, but that payment is not applied until the final month of the year, as that is when you make that 13th payment and really start getting ahead of your mortgage payment schedule.
A better way to pay off your mortgage faster, would be to take your current mortgage payment, divide it by twelve and apply 1/12th extra to each mortgage payment. By doing this, you are paying the same amount annually as with a bi-weekly mortgage payment, but right away with payment #1 of the year, you are having that extra payment money applied to your loan balance and even further cutting into the payoff time period for your home loan.
An even better practice would be to make an extra full payment towards the beginning of the year. For some, it may be a good practice to use something such as a tax refund or year-end bonus and apply that directly toward the mortgage. The sooner you apply the extra principal payment to your mortgage, the better.
