What Kind of Payment Plan Should You Choose?

Are you worried about the interest you are paying for your home loan? Do you want to save some money? Well, I don’t think I will hear anyone saying no to that. Did you know that there's a way to reduce down the overall interest amount? We at Majestic Home Loan want to introduce you to biweekly payment plan.

Biweekly payment plan? Is it what I think it is?
Yes. As the name states, you will be paying your mortgage payment once every two weeks instead of once a month. You will be paying half of your monthly payment every two weeks. In typical monthly payment plan, you will be paying 12 monthly payments per year, but in biweekly payment plan, you will be end up paying total 13 monthly payments per year (52 weeks per year, and a half payment per 2 weeks, then it's 26 half payments, resulting in 13 full payments per year). This may sound very unattractive because  you are spending one extra payment each year. But remember, when you make a payment for your home, you are not "spending" money on it, you are "investing" it. Basically, you are paying same original amount, with lower overall interest amount. Also, don't forget that by paying one extra payment per year, you can pay off the loan earlier by 6 to 8 years depending on your interest rate and home value. By paying off 6 to 8 years early, you can save over $30,000 if you have a 30-year fixed rate mortgage of $100,000 at 6.5% interest rate.

Then does it lower my overall interest rate?
Well, lowering overall interest itself and lowering overall interest "rate" is different. As I stated above, you may save over $30,000 by not paying extra interest of 6 to 8 years that you saved. This does not mean that your overall interest rate got dropped. Your interest rate stays the same. By paying off early by 6 to 8 years, you don't have to pay the interest for those 6 to 8 years.

I heard that biweekly payment increases more credit score than monthly payment.
This can be both a myth and truth. In many loan institutions, they use automatic bank draft for their biweekly payment plans. If you are a person like me, often forgets to send the payment check by due date, this can prevent you from getting lower credit score. By adapting an automatic payment, your loan institution electronically debits your payment every two weeks. So you do not have to worry about sending late payment, which brings down your credit score. But if you are a person like my coworker, who never forgets to pay his bill before due date, paying biweekly would not affect your credit score compared to monthly payment.

So, should I choose biweekly payment? Or should I just stick with monthly payment?
This is totally up to you to decide whether to choose biweekly payment or monthly payment. There are pros and cons on both biweekly payment and monthly payment. Let's take a look at the table below.

Does Majestic Home Loan offer biweekly payment plan?
Unfortunately, Majestic Home Loan does not offer biweekly payment plan. However, there's an alternative to biweekly payment plan and we call it alternative biweekly payment plan. This plan is not an institution-operated payment plan, but rather done by individuals. In a nutshell, you pay additional 1/12 of your monthly payment to each monthly payment. By doing this alternative biweekly payment plan, you will end up paying the 13 monthly payments per year. Just like biweekly payment plan, this can also pay off your loan earlier. This method has both pros of biweekly payment plan and monthly payment plan. Only drawback is that you would do it by yourself. Let's take a look at same table with alternative biweekly payment plan.

Although Majestic Home Loan does not provide an option to do biweekly payment plan, if you have any other question regarding to your current loan, you can always go to our website www.majestichomeloans.com/makeyourhomemajestic and chat with one of our agents, or call 1-877-546-2451 to speak to one of our licensed loan officers.

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