Dear Mr. Azrael:
I read that one way to dramatically reduce the cost of my 30-year mortgage would be to have a repayment system structured so that I'm making a payment every two weeks.
(This is different from my paying one-half my mortgage payment early and then the balance on the actual due date, or making one or two extra payments a year.)
However, I haven't been able to locate a lender willing to refinance my mortgage under this repayment schedule. Do such mortgages exist?
I think such a system would be tailor-made for automatic withdrawals from my bank account.
Dear Ms. Horn:
Dividing the monthly payment on a 30-year mortgage in half and using that amount to make bi-weekly payments can significantly reduce the term of your mortgage. Since 26 half payments equal 13 full payments, the term can be reduced by seven years or more.
For example, suppose that on May 11, 1993, you took out a 30-year $200,000 mortgage at 8 percent interest. Your monthly principal and interest payment would be $1,467.53.
Making monthly payments, that loan would be paid off on April 11, 2023. If instead, you make biweekly payments of $733.77, the loan would be paid in full on Feb. 2, 2016, provided that a payment of $582.08 is made on that date.
Paying off the loan more quickly greatly reduces the amount of interest you have to pay over the life of the loan.
Alternatively, a loan that amortizes over a full 30 years could allow for biweekly payments.
This type of loan would have a term of 30 years, but the payment schedule may be more affordable because of the biweekly structure.
Using the same example of the $200,000, 30-year mortgage at 8 percent, while the monthly payment would be $1,467.53, the bi-weekly payment would be $679.41. While 26 biweekly payments roughly equal the 12 monthly payments, as many people are paid biweekly, this structure may be more manageable for you.
Many lenders offer biweekly programs, automatic withdrawal or both. Any mortgage broker should be able to direct you to a lender that offers the programs you want.
Pub Date: 6/14/98