Before Considering Biweekly Mortgage Payments
| July 21, 2008 | Posted by Roshawn Watson under Uncategorized |
In an effort to pay off a mortgage earlier, some will do biweekly mortgage payments. This is a contractual agreement with your mortgage holder to pay half of your mortgage every two weeks instead of the full monthly payment.
Why the Mortgage Gets Paid Faster?
By making a biweekly mortgage payment, one is making the equivalent of 13 monthly mortgage payments in a year instead of 12.
How Much Faster?
In general, one can pay off a 30-year mortgage 6-8 years earlier.
The problem with many of these programs is that they charge a hefty price tag (from a few hundred dollars as a one-time charge to monthly service fees).
Some Alternatives to Avoiding the Fee
The best, more convenient, free alternative is to add 1/12 of a mortgage payment to your monthly payment (if sending a paper check, be sure to indicate that additional money should be applied to principal).
If you are paid every other week, twice a year there will be two months where you receive 3 paychecks. If you apply these “extra” paychecks to the mortgage, you will have the same effect as doing the biweekly payment program without the fees. Of course, this would require a little more discipline than an automated extra payment program.
If you just have to do the biweekly payments, call your loan servicing company to see if you can send in biweekly payments without enrolling into a biweekly program. Not all companies allow it, but it is worth a try.
Note, that you can save even more in interest by getting a 15-year mortgage instead of a 30-year mortgage (or paying a 30-year as if it was a 15-year mortgage if you already have a 30-year mortgage). The savings in interest is substantial and worth serious consideration.
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I'm not a fan of the bi-weekly payment plan. I use to work for a mortgage company and I told clients to keep the money in their savings account earning interest for them. Take the earned interest at the end of the month and then apply it to the mortgage payment. No need to give the mortgage company money sooner to let them earn interest on your money in their savings accounts.