Save Thousands With a Bi-Weekly Mortgage

March 2004

How to  Save Thousands on Your Mortgage

By Tim McMahon

You can save literally thousands of dollars and more likely Tens of thousands of dollars by following this simply relatively painless method.

By using this simple Bi-Weekly mortgage system to make your mortgage payments you drastically reduce the total amount of your interest payments and you can even cut the time it takes to pay off your mortgage! Sound interesting?

I did exactly this myself a couple of years ago after I had refinanced at a lower rate. But you don't have to refinance to take advantage of this great method! A single five-minute phone call is all it takes. Often there is no charge for this service. I actually pay the mortgage company $2.00/mo. for the service but it is well worth it!

Chances are, you can do the same thing. Here's how these "mortgage-reduction programs" work.

Normally, your mortgage is due once a month so you make 12 payments per year. By setting up a Bi-Weekly Mortgage payment plan you simply divide your payment in half and pay each half every two weeks.

At first glance it is hard to figure out how that can possibly save you anything. If you think about it a little harder you will realize that half the payment is made two weeks early so that saves you the interest on that half for two weeks. But how much difference can that make? Well over the life of a 30 year mortgage it may actually reduce the interest by a couple of thousand dollars. But wait there is actually more.

Remember we are paying our mortgage every two weeks not every 1/2 month. So... since there are 52 weeks in a year we are actually making 26 "half" payments. Or the equivalent of 13 "whole" payments a year. So rather than making 12 payments in a year you painlessly slide in another payment.

I say painlessly because your payments are actually smaller and more evenly spread out so you don't notice them as much as the one big monthly mortgage payment. And because they are spread more evenly budgeting actually becomes easier.

For those of you who get paid every two weeks it is even better because you know exactly how much is coming out of each paycheck for the mortgage. But even if you are paid weekly you will know how much is coming out of every other paycheck rather than having to worry about the big lump at the end of the month.

So with the Bi-weekly mortgage plan each year, you make one extra mortgage payment. That extra goes directly toward principal (paying down your loan even faster). Since you're reducing the amount of the loan balance faster, you're also reducing the amount of interest you're charged.

For example, if you took out a 30 year, 6% Fixed mortgage for $150,000 mortgage. Your monthly mortgage payments for principal and interest would be about $899. If you make these payments monthly for 30 years, you'll pay a total of $323,968. With $150,000 of that being a return of principal. The rest,  $173,968, will be the interest you paid.

But if you pay your Mortgage  Bi-weekly...  you will only pay $136,671 in interest...  saving you a whopping $37,296 in interest!

What to watch out for:

Most mortgages don't have a prepayment penalty but before you try to do this make sure yours doesn't!

 Check your mortgage papers for a section titled something like "Borrower's Right to Prepay." In it, you should find that you have the right to make a full or partial prepayment of principal without any prepayment charge.

The other thing is if your mortgage company has a provision for Bi-weekly payments. Most do, but if yours doesn't you might consider refinancing with a company that does (especially if you are paying a higher rate and can reduce the amount of your total payment at the same time)

Even if the bank that loaned you the money to buy your house has sold the note to a different company (which often happens), the new note holder still has to go by the terms of the original loan. And if the original loan doc says there's no prepayment penalty, you should be able to add money toward the principal as often as  you want to.

The nice thing about setting up a bi-weekly mortgage payment plan is that the money is automatically withdrawn from your checking account every two weeks. No more checks to write no worrying about the payment when you are on vacation, no late fees!

You can also tell them to make that withdrawal 10% or 15% (or whatever percentage you choose) more than your regularly scheduled monthly payment and pay off your loan even faster!.

This will help you build equity more quickly and save thousands in interest payments but it may also improve your credit rating. And you can make it happen in just a few minutes, with a simple phone call to your bank.

If your bank doesn't have this type of program there are companies that will do the same thing for you but they charge hefty fees to do it.

If you'd like to see how much you can save see our Bi-Weekly Mortgage Calculator

If you are considering refinancing see the links to the right for some great deals on rates.

 If your bank doesn't offer a Bi-weekly mortgage program then for a fee this company will handle your payments in a way that will be acceptable to your bank. Bi-Weekly mortgage program .

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