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What Big Banks Don't Want You To Know: Home Loans

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Paying Your Mortgage Bi-Weekly Can Save You Thousands

The first tip that most banks don’t want you know is that you can save thousands of dollars in interest if you pay your mortgage bi-weekly instead of monthly. Paying bi-weekly adds an extra payment each year, which helps reduce the amount of interest you ultimately pay, and helps pay down the home loan faster.

Here’s the rationale – there are 52 weeks in a year, 26 bi-weekly periods, and 12 months. If you pay twice a month, then you’ll make 24 payments during the year instead of 12. If you pay your mortgage bi-weekly, you’ll end up making 26 payments throughout the year, which adds one extra months’ mortgage payment each year. The extra money should be directly applied to your principal which helps reduce your interest over the life of the loan.

Make sure to contact your lender for more details and to find out if there are any pre-payment penalty fees. If you haven’t secured your loan terms with your loan officer, make sure to ask about this and get the best mortgage for you.

Here’s how it breaks out to see the real savings using a mortgage calculator and these details:

  • Mortgage and loan amount: $200,000
  • Interest rate: 5%
  • Loan term: 30 years
  • Property tax: 1.25%
  • PMI: 0.5%
  • Home insurance: $1,000/year

Monthly Payments

Details Pay Mortgage Monthly Pay Mortgage Bi-Weekly
Payment Amount $1,236.31 $682.65
Time to Pay Off Loan 30 years 25 years and 3 months
Total Interest Paid $176,011.57 $141,654.98
Savings in Interest $0 $34,356.58

Crunch your numbers with our Increase Your Monthly Payment Calculator or contact us if you’d like to talk to us about how you could apply this payment strategy.

You Don’t Need Perfect Credit to Buy a Home

Did you know that you can qualify for an FHA loan with a credit score of 580? If your credit score is at least 580, that would put you into the category of being able to qualify for a down payment of only 3.5% of the home’s purchase price according to HUD. If your credit score is below 580, you may not be excluded from getting an FHA loan, you may just need to pay a 10% down payment. The thing to keep in mind is that people with lower credit scores may face lender’s overlays, which are additional guidelines that lenders impose on top of the government’s qualifications.

Try to Close at the End of the Month to Save Money

Another trick the big banks don’t want you to know is that you could save money on closing costs if you close on your home at the end of the month. The reason is that if you close on your home at the beginning of the month, your prepaid interest increases. However, if you close towards the end of the month, your first mortgage payment will be due sooner than if you closed at the beginning of the month.

Many people try to aim to close towards the end of the month, therefore it’s a busy time with many closings, which can increase the risk of delays and human error. Some lenders offer a credit to those willing to close earlier in the month. If you are getting a loan backed by the FHA or VA, closing by the 7th of the month typically helps you earn a credit. For those getting a conventional mortgage, closing by the 10th of the month can help you get a credit. Ask your mortgage officer for these details ahead of time to see what’s available for you.

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