Helpful Tips On Bi Weekly Home Loan Payments

The typical mortgage is structured so that you make a single payment each month for a total of twelve payments per year. This means you pay the same amount at the same time each month. Having a payment plan like this makes sure that there are no surprises and is very easy to budget for each month, but did you know that if you split that monthly payment up and made bi-weekly payments you could save thousands of dollars and cut years off of your mortgage. 

How Bi-Weekly Payments Work:

·         The bi-weekly payment comes from the fact that there are 52 weeks in a year and along these lines you’d have 26 payments. If you were to make two payments a month that would be only 24 payments in a year. If you make payments using the bi-weekly method you would be making an additional two payments each year, and that is equivalent to making one extra monthly payment.

·         For example, a consumer with a $200,000, 30-year mortgage at 5%, for example, could pay off this loan five years faster and save $33,000 in interest by paying biweekly. Obviously, the larger your mortgage and higher your interest rate, the greater the savings.

How to Make Bi-Weekly Payments:

·         While the general idea is as simple as splitting your monthly payment in half and making a payment every two weeks, you will need to check and make sure that your lender will accept bi-weekly payments. The majority of lenders should, but there are always cases where they do not. If they do, they may not automatically apply the extra to the principal. Make sure that your lender will immediately credit each half monthly payment upon receipt. If the lender waits for the second payment to arrive before crediting your loan, this payment plan is pointless and you will never see any of the benefits.

·         Also check with your lender and make sure that if you already have an established automatic payment plan that you can cancel that plan and switch to the bi-weekly payments, or you might find yourself paying even more then you need to pay.

·         Most mortgages today do not have a prepayment penalty, but there are some older loans out there that penalize you for paying off your mortgage early.  If you have an older loan, make sure there isn’t a penalty for prepaying your mortgage. You want to make sure that you won’t be doing more harm than good by making extra payments.

Things to Watch Out For:

·         Unfortunately, you have to constantly keep an eye out for scams or special programs that claim they can do this for you. There have been reports of some companies that offer to convert your monthly mortgage payment into bi-weekly payments for a one-time fee of $300 - $400. Beware of these offers. With reputable lenders it shouldn’t cost you anything to make extra payments on your own loan. Even if your lender won’t accept bi-weekly payments you can still achieve the same results by making a single extra monthly payment once each year.