Increasing Home Equity With Biweekly Plans – Your Questions Answered
Maintaining house values and stabilizing home equity is vitally important to American homeowners during this prolonged economic recession. The following is a series of reoccurring questions that many homeowners have regarding home equity and how to increase the wealth held within their properties.
Q: How can I increase the equity I have in my home?
A: There are two ways you can personally increase the equity in your home. The first is to invest in the property by upgrading the house or improving the land. The most effective areas of the house to renovate are the kitchen and master bedroom as the equity returns for those improvements are the greatest.
The second and most manageable way to increase the equity in your house is to pay down your mortgage. The best way to do this is through an automatic biweekly mortgage payment plan. Biweekly plans are simple. Instead of making a full payment each month, you pay half of your monthly payment every two weeks. Since there are 52 weeks in one year, this translates into thirteen full payments per year rather than twelve. The additional payment is contributed fully to your loan principle balance, effectively reducing your interest rate and increasing your equity.
Q: Do I have to join a program? Can I do this myself?
A: You can do this yourself, but it takes great discipline, endurance, and understanding of your mortgage to ensure the desired results. A trusted third party biweekly provider will automate these payments for you and take out all the guesswork from the process. Your biweekly program can be arranged to automatically withdraw your biweekly payments from your checking or savings account so that your mortgage payments correspond with your employment paychecks, a great budgeting tool to ensure that your mortgage commitment is taken care of as soon as you get paid.
Q: What program should I use? Does my lender offer this?
A: Some banks and lenders offer a biweekly payment program. However, you should consider using a third party company that is independent of your bank’s program. An independent company works with you to ensure that your bank applies the extra principal payments properly and serves as an advocate for you in the mortgage process. Another benefit of working with an experienced independent company is that your biweekly mortgage program can move with you from house to house and from lender to lender if you refinance or relocate, giving you stability and continuity in your mortgage payment process.
Another note of caution when considering a lender based biweekly program is to realize that a lender’s main source of income is to earn interest on your loan. This creates a moral hazard that tends to lead to poor customer service for biweekly customers and a lack of vigilance in managing the program. One or two extra principal payments poorly managed can cause you to pay thousands of dollars in extra interest expense over the life of your mortgage.
Q: How much can I expect to save with a biweekly payment program?
A: Consider a $250,000, 30-year home loan at 7.5 percent, with a monthly payment of $1,750. By paying your monthly payment for the life of your mortgage, you will pay nearly $380,000 in interest alone, and your home will end up costing a total of $630,000. If you pay $875 every two weeks, however, you will save a total of $105,000 in interest, and you will pay off your mortgage almost 7 years early.