Bi-Weekly Mortgage Payments

When it comes to paying off your mortgage, paying once a month always seems like the go-to route, but if there’s a way that’s a shortcut to the light at the end of the tunnel, wouldn’t you rather take that?

Yes. Yes you would. So let’s talk about that shortcut: bi-weekly payment plans.

What does a bi-weekly payment plan look like?

  • A mortgage payment plan where payments are made every two weeks, as opposed to the more traditional monthly payment plan.

What is the point in paying more often?

  • Tens of thousands of dollars can be saved by making bi-weekly mortgage payments and enables the homeowner to pay off the mortgage almost eight years early with a savings of 23% of 30% of total interest costs.
  • To better explain, with the bi-weekly mortgage plan each year, one additional mortgage payment ends up being made. That extra payment goes toward the principal of the loan. Since you are reducing the amount of the loan balance more quickly, you are also reducing the amount of interest charged over the life of the loan.

Need us to paint you a picture?

  • A 30-year mortgage for $100,000 at a rate of 6.5% means you would pay $127,544 in interest throughout the life of the loan. This also includes a $100,000 principal for a grand total of $227,544. Paying one-half of the regular monthly mortgage bi-weekly makes the interest $97,215, which is a savings of $30,329.

So how can you switch from monthly to bi-weekly?

  • Many third-party companies will make the offer to convert a mortgage to a bi-weekly payment plan with a fee. The lender will automatically withdraw the payments from your bank account every two weeks. But, make sure to read the fine print associated with this. Many of those companies only pay the lender once every month, so that extra payment doesn’t get applied to the loan until the end of the year. In the meantime, the company earns interest on your money in addition to charging you a fee that can seem high at times.
  • In order to take this route to build equity in your home at a faster pace, you must have a lender that will credit half of the monthly payment immediately. If the lender waits until the next payment has been received before crediting it to the loan’s principal, you will not see the full benefit. Many lenders decide to hold partial payments in an account until the rest of it is received. In this case, you would not benefit from half payments.

With these sort of warnings, what happens when you just can’t switch to bi-weekly with your lender?

Do it Bi-Yourself

  • If the lender does not offer a bi-weekly program and you are smart and interested in paying the loan off early, a bank account can be opened and arrangements made for the mortgage payment to come out every month in two bi-weekly payments. At the end of the year, you can write a check on the account for an amount that is the same as the monthly payment and send it to the lender.

Bring someone else into the mix:

  • There are what is called intermediary companies that can set up bi-weekly mortgage payments for you. What happens is your checking account is debited every other week for the bi-weekly amount, and then you can send a regular monthly payment to the lender once per year. The only problem that can arise is that these intermediary companies usually charge a fee to make that extra payment and the fee can be rather large. Another problem is that if the intermediary becomes bankrupt and doesn’t make the payments, the lender will not care if it wasn’t your fault. It is still your responsibility to make payments on time, even if a third party is the one making them for you.

 

We get it. Paying for anything isn’t fun, so we are huge supporters of bi-weekly payments to end those relationships with local mortgages in Atlanta quicker than you can say, “It’s not you, it’s me.”

Curious enough to test the waters? Check out this bi-weekly mortgage calculator to see what it would look like to save more and worry less.

Need extra help keeping costs low with your mortgage? Check out what we have to say about closing costs and all that jazz.