When Should I Prepay a Mortgage?
Zach in Lake Forest, Illinois, was intrigued by the offers he got in the mail to help him pay off his mortgage faster.
These services offer to help you set up a biweekly payment program to shave your loan costs. Rather than pay $1,199 a month on a $200,000 mortgage, for example, Zach would pay $599.50 every two weeks. Since there are 52 weeks in a year, he'd be making 26 half-payments—the equivalent of 13 full payments, or one more payment than he would otherwise make.
The biweekly plan, the service promised, would shave five years and $47,282 in interest off the cost of a 30-year mortgage, assuming it had a 6% interest rate.
“Is this any different from just prepaying that one extra payment per year?” Zach asked ...
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