Bi-weekly Mortgage Payment Plan: should you or should you not opt for it?
By Sadiya Anjum
In a biweekly mortgage plan, you are required to make a half payment every two weeks instead of once a month. You will be making 26 payments (1 year = 52 weeks) every year and this is equivalent to 13 full payments (one extra payment!) each year. This itself will help you bring down the term of your mortgage. But you have to ensure that your extra payment is put down towards your principal only in order to bring down your outstanding mortgage and the interest. With a simple plan like this, you can bring down your mortgage period by almost 5 years and save several thousand dollars in interest.
Every seemingly good thing has a catch and so does a biweekly mortgage payment plan. Usually a biweekly plan is set up by a lender or a third party (like an escrow company) since the lender may not be willing to accept a payment every 2 weeks. In both cases, a fee is charged to set this up. An escrow company will in fact charge you extra every month. You will also be handing over your payment duties and credit ratings into the hands of others. So if late payments are made to the lender, you will be held responsible not the company.
A biweekly mortgage payment may not feasible for everyone. You may not be able to pay extra every month or some times you may not be able to pay the same amount each month. It may even be easier to pay a lump sum once a year to make that 13th payment possible.
Another alternative is to divide a month’s payment by 12 and add that amount to your payment each month. But make sure that you indicate clearly that the extra amount paid is towards your principal. Contact your lender for further details on this.
Before you decide to do any of this, you need to check the mortgage for any prepayment penalties. Paying off your debt quickly but being punished for this with a penalty would not make sense. Also ensure that any extra payment you make is put towards your principal. Request for your account balance history once in three months from your lender to make sure that the extra you are paying is going to your principal.
A biweekly mortgage payment is definitely a smart thing to do as you will be saving an unbelievable amount which would otherwise be paid as interest. You will also bring down the life of your mortgage by a significant period. It may even be easier to budget if you can spread out your payments into two portions.
But the truth is that you do not have to pay a fee to anyone just to make those extra payments. See how you can make that one extra payment each year on your own. Even if you put just a couple of extra dollars towards your payment regularly, you can be debt free earlier than you expect and save an incredible amount of money!
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