News and Events
July 23, 2007
How Can a Bi-Weekly Mortgage Payment Help You
How Can a Bi-Weekly Mortgage
Payment Help You
Every one of us wants to pay less interest on their home
loan, and it’s not difficult. A number of years ago, financial institutions
began marketing the bi-weekly payment option.
According to Fannie Mae, utilizing the plan would reduce a
30 year mortgage by 8 years. The key is that by making payments every 2 weeks,
there will be two months out of the year where you will be making three
payments instead of two.
Many individuals are paid biweekly and find it easy to fit
the mortgage payments into their budget to coincide with their paychecks. By
paying bi-weekly, you make 26 half payments vs. 12 monthly.
Every dollar of that extra payment is applied towards
reducing the principal balance, which is the balance that future interest
calculations are based on. When the additional amount is applied to the
principal balance each year, it quickly reduces the balance and you save
thousands of dollars in interest over the life of your mortgage.
On-line mortgage calculators are available at no costs to
help you determine your savings. A
$150,000 loan at a term of 360 months at 6.25%, monthly payments of $923.58,
would equate to $182,484.35 in interest during the life of the loan. Using a
bi-weekly payment option, your biweekly payments would be $461.97 and the total
interest paid would amount to $140,606.98.
Most institutions charge an initial set up fee and a monthly
servicing fee for this option so it’s important to know what those fees are
upfront. Some institutions allow you to choose this option initially at reduced
or no fees, but each institution will vary on costs, fees and options.
Also, check with your lender to be sure that your loan
doesn’t have a pre-payment penalty that may affect your loan if you make
additional payments.
There are intermediary companies that will set up bi-weekly
plans for you. They debit your account every other week, then send your regular
monthly payment to your lender.
There is NO reason to pay a fee for something you can do on
your own. What if the company you trusted to send your payment becomes bankrupt
and doesn’t make your payment?
No matter how you do it, making one or two extra payments a
year will significantly reduce the interest you’ll pay on your home.
Sources: FannieMae.com
