Pay Your Mortgage Every Two Weeks
Traditionally, mortgages are paid off on a monthly basis. For
some home owners, more frequent payments are preferred. One possible
payment plan is a bi-weekly cycle, where you will pay half of
what you would each month. Not all lenders offer this plan, but
it is certainly worth inquiring with your mortgage company.
With the bi-weekly payment plan, you lower your interest and
pay your loan off faster by making payments every two weeks instead
of every four or five weeks. There are fifty two weeks in a year,
so you will make twenty-sex payments every two weeks. This amounts
to thirteen full payments a year, which is one more than you would
have made with a monthly payment plan.
Your principal is reduced with the extra payment and therefore
your interest is reduced as well. So by paying more often, you
are reducing your interest, reducing your principal and reducing
the length of your loan.
Sometimes if your mortgage company does not offer a bi-weekly
payment plan you can inquire with a third party. There are companies
that can give you a plan where they will pay your lender every
two weeks and charge your credit or debit account. Of course this
service will probably cost a fee.
Involving a third party may be a good idea, but you may want
to avoid paying a fee for a service you can do on your own. Also,
you will be relying on the third party to make the payments, so
if they don’t follow through than you are in a very sticky
situation. You also depend upon on them for administration and
bookkeeping matters, so if money gets miscalculated or records
get lost, it can cause a real problem for you. They will be getting
paid for their services but that doesn’t guarantee they
won’t screw up your mortgage deal.
As an example of the savings you would receive by using a bi-weekly
payment plan, consider you have $150,000 as your loan for a term
of 360 months with a six percent interest rate. Your monthly principal
and interest payment would be $899.33 with $173,757 interest over
the life of the loan. However, if you use bi-weekly payments,
you would pay $449.67 every two weeks, pay $135,294 interest over
the life of the loan, and pay the loan off in 24 years instead
Whether or not the bi-weekly payment plan is a good option for
you is up to you. Do your own calculations and decide if the savings
would be worth it. Also decide whether you would be able to make
payments so frequently, and whether or not you plan on staying
in your home or refinancing.