Biweekly mortgages have been touted by many companies as being an excellent way to save money and pay off your mortgage earlier. Some companies even claim that "it won't cost you any more than you're paying now." What a crock! What do you think a true biweekly mortgage saves you? I'm talking about the savings from paying more frequently. Well, it doesn't save that much at all. Hold on to your calculators. We're going to use our brains and look at this problem very carefully. Here is something these biweekly mortgage salespeople don't want you to do.
A $100,000 mortgage at 8% for 30 years has a monthly payment of $733.76. That's 360 payments of $733.76 or a total of $264,155 at the end of 30 years. A true biweekly mortgage with 780 payments (26 payments per year) has a payment of $338.52, which totals $264,041 after 30 years of payments. Check out how much you saved by paying biweekly-that's right, only 114 bucks ($264,155-$264,041)!
So, if paying more frequently isn't what creates the savings, how can these companies claim to save you big money? They use the "biweekly" word to imply that increased frequency of payment can save money, when the real way they show the savings is by making you increase your payments.
They do a little math trick to force you to pay more, and that trick is to divide your mortgage in half and make that result the biweekly payment. The problem here is that 26 half-payments equal 13 whole-payments or an extra month's payment each year. Obviously, if you pay more money, you reduce your mortgage faster.
Posted by Anonymous on July 03, 2007 10:07
very interesting
per3va2cho4k per3va2cho4k