Dear Sue,
I just refinanced with Wells Fargo. They said that if I made bi-weekly payments I would pay a lot less interest over the term of my loan.
My accountant said that I could accomplish the same thing by making at least one extra payment each year.
How does that work?
~ Inquiring Ida
Dear Ida,
The concept is really very simple. The less principal you owe, the less interest you pay.
Let’s assume that your loan balance is $100,000, and your interest rate is 5 percent. If you pay nothing toward principal, the annual interest would be $5,000.
Assume that you paid $3,000 toward principal and reduced the loan balance to $97,000. The annual interest at 5 percent would be $4,850.
If the same $100,000 loan was fully-amortized over 30 years, the principal and interest payment would be $532.82 per month. If you made payments of $1,000 per month your loan would be paid off in 10.83 years instead of 30, and your interest savings would be $61,815.
The bi-weekly payment method works because there’s 26 bi-weekly periods in a year. One extra payment is made over 12 months.
You can accomplish the same thing by making one extra payment or periodic payments throughout the year.
Some borrowers add an extra hundred or two whenever they can. Some use their year-end tax refunds. Whatever you do, be consistent about it.
It’s important that when making your extra payments that you specify that the payment is to be applied to the principal balance.
Dear Sue,
I heard that the Federal Housing Administration is going to waive the 90- day flip rule.
I heard that FHA is going to allow their borrowers to buy properties from investors without having to wait for 90 days.
Since I am an investor, I will flip with joy if it’s true.
Is it true?
~ Flippin’ Fritz
Dear Fritz,
Yes it’s flippin’ true.
Effective February 1, 2010, the Federal Housing Administration will not require that a seller be on title of a property for 90 days or more in order to sell the property to a buyer acquiring FHA financing.
This is great news! It opens up the buyer pool for investors and gives FHA borrowers the same opportunities as other buyers in the marketplace.
The waiver will be in effect for one year.
Waiving the 90-day flip rule is a matter of good Home $$$s and Sense.
Sue Thompson is owner and sales manager of HomeTown Realtors in Auburn. She can be reached at seesue@seehometown.com, or on the Web at homedollarsandsense.com.
