3 Repayment plans to pay off your mortgage loan
While taking out a mortgage loan, you should calculate your affordability and decide how to pay it off within the stipulated time period. It is advisable that you choose a mortgage repayment plan that fits comfortably in your budget so that you’ve no difficulty in making the home loan payments on time.
3 Ways to repay your mortgage
Go through the following lines to know about 3 mortgage repayment plans.
1. Monthly mortgage payment
This is the most common mortgage repayment plan where you need to make a monthly payment that comprises of the PITI (Principal, Interest, Tax and Insurance). During the early stages of the mortgage loan, a considerable portion of your monthly payments go towards paying the interest while at the later stage, the amount is mainly utilized towards paying off the principal amount. Thus, in an fully amortized mortgage loan, you pay off the entire balance at the completion of the loan term.
2. Biweekly mortgage payment plan
Biweekly mortgage payment plan is a suitable alternative to making monthly payments. In case of biweekly mortgage, you need to make the payments every other week. For making the payments, you simply divide your monthly mortgage payments into 2 biweekly installments. Thus, you actually make 26 half payments a year, which is equivalent to paying 13 monthly mortgage payments. This is because there are 52 weeks in a year and if you pay biweekly, you need to make 26 home loan payments. In this mortgage repayment plan, the 13th monthly payment is usually applied towards the principal amount, which affects the length of the mortgage significantly. You can pay off a 30-year home loan in just 23 years by choosing this payment plan
3. Graduated payment mortgage
In you choose graduated payment mortgage, then you’ll have to make comparatively low payments at the initial years and it will increase with time. You can opt for this payment plan if you want to rebuild your savings after making the down payment on your home. However, before selecting such a payment plan, you need to assess your financial condition and decide whether or not you’ll be to afford the increased payments later on. Moreover, you need to pay a relatively high interest on such a mortgage repayment plan. The mortgage balance also increases after a few years as usually you don’t pay any interest for the initial years. So, after a few years, the unpaid balance may exceed the appraised value of the property.
You can take help of mortgage calculators to compute how each of these mortgage repayment options affect your home loan in the log run. While using such calculators, make sure that you choose one from a reputed site so that your calculations are accurate. In turn, it’ll help you to select a repayment plan that you can afford and by following which you can save money in the long run.