This Article will compare and Contrast the Old-School Bi-Weekly Mortgage Method with the New Millennium Invest the Difference Method. Can The New Millennium Method really result in over $1,200,000 more money in your Retirement Account.
A Bi-Weekly Mortgage is a Craze that has been Sweeping the Mortgage Trade since those 18% and Higher Mortgage Rates of the late 70's and early 80's. The basic premise behind a Bi-Weekly Mortgage is that instead of making 12 Monthly Payments a year you make 26 Bi-Weekly Payments a year. Each Bi_Weekly Payment is 1/2 of the Monthly Payment. You pay off your Mortgage Faster and Save Lot's and Lot's of money because you are making 13 Payments a Year instead of 12. That Extra Monthly payment has the effect of Dramatically reducing your Payoff schedule.
Here are the results of a calculation done recently using an Online Calculator from a Popular Bi-Weekly Mortgage Program. The Example used a 30 year Fixed rate loan with a 5.5% Interest rate and an $$1,135.58 Monthly payment or a 567.79 Bi-Weekly Payment.
- Current Balance: $200,000.00
- Interest Remaining (Current): $208,806.90
- Interest Remaining on Bi-Weekly: $168,980.52
- Estimated Interest Savings on Bi-Weekly:39,826.38
- Term Remaining (Current): 360 Months
- Term Remaining on Bi-Weekly: 301 Months
- Estimated Term Saved if on Bi-Weekly:59 Months
Looking over the above numbers A Bi-Weekly Mortgage seems very Promising and it is. You Save almost $40,000 in Payments and Reduce your Loan Term by 4 Years and 11 Months. So By Making 25 Extra Payments of 1,135.58 you pay $39,826 less interest over the life of the loan.With the New millennium comes a new and better almost $600,000 More Money in your pocket over the initial 30 Year Loan Schedule.
(Over $1,200,000 if the $600,000 is allowed to grow for your retirement nest egg.) Here is the plan in a Nutshell. You get a 30 Year loan with a Payments for the first 5 Years Fixed at an Interest rate of 1.95%. You then take the Money you save and Invest it in an Annuity with an Assumed 8% return.
Your Payments on a 30 Year Mortgage at 1.95% = 734.25
You Invest $495.96 a Month for 30 Years at an 8% Return
- At the end of 5 Years you have Over $34,900
- At the end of 15 Years you have over $161,500
- At the end of 25 Years you have Over $435,000
- At the end of 30 Years you have Over $674,000
With The Above Bi_weekly Mortgage all your money $1230 on average monthly is going to pay your mortgage so
- At the end of 5 Years you have $0
- At the end of 15 Years you have over $0
- At the end of 25 Years you have Over $0
- At the end of 30 Years you have Over $86,500
(Since your Mortgae is Payed off 5 Years Early you now save 1230 a Month invested at a Return of 8% for 5 Years)
With the Old Bi-Weekly Method you have $86,500 in your Investment account. With the New Millennium Method you have over $674,000 in your Investment account. Almost $600,000 more.Going one Step Further, Let's assume each home-Owner is 25 when they get the initial Loan and they let the Money sit in the Investment Account for 10 More Years (until they are 65) at an 8% return.
- 674,000 at 8% will grow to $1,400,000 in 10 Years
- 86,500 at 8% will grow to $ 186,900 in 10 Years
This Equals a 1.2 Million Dollar Difference in your Investment (Retirement) Account at age 65.About the Author
Mike Makler is a Financial Consultant in the St Louis Missouri Area Specializing in Real Estate Loans and Annuities. To Learn More Call Mike at 314 398-5547 or Visit Mike's Web Page: http://ewg uru.com/finance
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Copyright 2005-2006 Mike Makler
