Jun
23
Is paying your mortgage biweekly the smarter way to go?
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I heard it cuts the interest and you end up paying the loan down faster.
Anyone on this pay schedule?
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6 Comments
June 24th, 2010 at 3:02 am
You heard correctly and it is the smarter way to go.
June 24th, 2010 at 3:14 pm
No it is useless. Better to just add an extra hundred or two each month and mark it as principle We did that and it knocked 10 yrs off our mortgage
June 25th, 2010 at 12:57 am
Only do so if your mortgage holder will agree to this without additional fees. If there is a fee, don’t take their program. Simply divide the amount of your monthly payment by twelve (months) and add that amount to each monthly payment, the extra applied to principal. The result is nearly identical to any bi weekly payment arrangement.
June 25th, 2010 at 9:05 pm
yes it works to pay loan down faster. your bank must agree to this. and many banks do not accept partial payments. so check with your lender as to if this is possible.
another technique with similar results is to add 1/12 to each monthly payment.
June 28th, 2010 at 5:53 am
Do you realize that the reason that this works is because you are making 13 payments a year as opposed to 12? If your lender wants to charge you for this, it is not worth it. Either pay extra each monthly pay date (and ensure that the extra goes to principal, not prepaying of interest) or pay double the normal amount once a year.
June 29th, 2010 at 2:26 am
Paying biweekly basically means you are making 13 payments a year instead of 12. (Since a year has 52 weeks, dividing it into 2 week biweekly periods = 26 payments of half the normal amount = 13 regular monthly payments).
So, yes, you do pay less interest because you are paying more of the principal balance back faster than those who make 12 payments a year.
It’s not a bad idea, except if your bank charges you a fee to set it up, then it is a ripoff. Also, if you are required to stick to it once it is signed up, that can also be a problem, because what happens if you lose your job and can’t afford the extra amount for a short while.
What you could do instead is divide your normal payment by 12 (say it is $1,450 /12 = $120), and add that extra amount ($120) to your principal payment each month. That way you save on interest, and if there are months you can’t afford to send the extra $120, you are not penalized.
One last thought – do not do this unless you are contributing the maximum amount you can into a retirement account such as a 401k or IRA. The tax benefits of those are substantial, and you should take full advantage of those before putting spare cash into your house.