You can save on your mortgage by paying it every 2 weeks

The Ticker

March 26, 1997|By Julius Westheimer

THE QUESTIONS I hear most after the tiresome "Where's the stock market going now?" -- I wish I knew -- are: "How can I save money on my mortgage?" and "What's the best way to prepare for college expenses?"

To save mortgage interest, try this: Instead of making your payment once a month, make half a payment every two weeks. That totals 26 payments a year, the equivalent of 13 monthly payments rather than 12 -- that's the big money-saver. All of the extra payment is applied to the principal, accelerating the payoff.

On a $100,000, 30-year loan, here is the arithmetic:

Using the biweekly payment schedule on mortgage at 7 percent interest, the loan is reduced to approximately 26 years, cutting the interest from $139,509 (using monthly payments) to $105,045. That saves you $34,464.

At 8 percent, the loan is reduced to 25 years, and you pay interest of $117,857 on a two-week payment program instead of $164,155 the traditional way, saving $46,298.

At 10 percent, the loan drops to 20 years and you pay $137,679 biweekly, compared with $215,314, saving $77,635.

Also, because you pay off the principal faster, you build up more equity earlier. The biweekly payment plan is especially convenient for people who are paid every other week.

Regarding future college bills, Black Enterprise magazine highlights the topic in its excellent April "Annual Investment Issue."

The article says, "Short-term sacrifices bring long-term rewards. Parents must realize they should stockpile funds and search for wily investments for their tots' college educations."

Wily investments? The article states, "The stock market is the best place to grow your money fast enough to keep up with rising college costs."

To begin, parents should consider stock mutual funds for diversification and professional management. As children reach ages 8 to 10, lock in some gains and switch proceeds to bonds or money market funds.

When college is two to three years away, put additional money into certificates of deposit or Treasury bills for safety.

In saving for future college bills, it's crucial for parents to understand that they must start early, invest regularly and invest in long-term stock programs.

Ernst & Young's "Personal Financial Planning Guide" calculates that if your child is 1 year old, you'll need about $140,000 for four-year college costs. If your child is 10, you'll need $76,000; age 17, you'll need $47,000.

It's later than you think!

Pub Date: 3/26/97

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