Bi-Weekly Mortgage Payments
Posted by: Greg Fischer Post date: May 2nd, 2011As a homeowner, I frequently get offers from companies looking to save me “tens of thousands” of dollars on my mortgage, while I pay if off 7 years sooner. As a mortgage professional, I frequently get offers from companies encouraging me to resell their services to my borrowers so that they can save “tens of thousands” of dollars and pay off their mortgages faster. The magic they’re selling is a bi-weekly payment plan.
It’s true that paying bi-weekly will cut years off the term of your mortgage, and by doing so, will save you tens of thousands of dollars. Maybe more. By paying a 1/2 payment every other week, you’re making the equivalent of 13 payments a year (26 bi-weekly payments, divided by 2 = 13). That 13th payment, made every year cuts the amortization to about 23 years on a 30 year loan.
But most of these companies are charging a $300-$500 setup fee, and a monthly fee for collecting your payments and sending them off to your loan servicer. Would you spend $500 so save $60,000 (or more)? I hope so. But you don’t need to spend that money to reap the savings.
It’s all about discipline. All they’re doing is collecting your bi-weekly payment and forwarding it to your lender. You can accomplish exactly the same result by making an extra payment every year. You could pick one month to make a double payment (and bank the rest during the year) or look at your mortgage statement to see what your principle and interest payment is each month, divide that number by 12 and add the result to your payment each month.
Principle and Interest (PI) = 2,000
2,000/12=166
So your new payment should be $2,166 to achieve the 13 payments a year results. Now take your $500 and contact your financial planner to get it working for you.
