What is a bi-weekly mortgage payment and how can I take advantage of it?
We have been talking to a lot of customers and friends lately who not only aren’t using this incredibly useful tool for paying down a mortgage quickly, but many don’t even know it exists.
Using bi-weekly payments to pay down your mortgage is one of the easiest tools to help you save money, A LOT of money, without feeling like you are doing or spending anything extra.
The concept is that you make one extra payment a year, which adjusts your amortization schedule, so that the loan is paid off earlier, which could end up saving tens of thousands of dollars in interest, and potentially even more in reducing your total number of payments.
Even if you end up not staying in a loan for the full 30 years (which most people don’t), this method will still lower the balance that you are paying off when you refinance or sell.
You can set this program up directly with your mortgage company (servicer) or do it yourself. The process is simple and there are two primary options.
The first option is to set this up with your servicer, and they will auto debit half of your mortgage payment every two weeks. This will in turn make 26 (half) payments to the mortgage during the year (13 months of payments). Many servicers will do this for free but some do charge for it, and in my opinion they do charge too much sometimes.
The second option is to do it yourself. You can do this by simply dividing your principal and interest (P&I) mortgage payment by 12 and apply that amount to your payment every month. For example, if your P&I payment is $1200/month, you should pay an extra $100/month. However, it’s very important that you tell the servicer on your payment (check or electronic payment) every month, that you want them to “apply the overage to principal.” Do NOT assume they will do this or know to do this without your direction.
Here is an example of the amount of money you can save. On a $250,000 loan with a 4.5% rate on a 30 year term you will pay $206,106 in interest. With this bi-weekly mortgage payment method, you can pay the loan paid off in 296 months instead of 360 months, and pay $171,288 in interest, which means that you save $81,408 in payments that you don’t have to make.
That’s a total savings of $116,226 in your pocket…BOOM! Nothing to sneeze at.
Call your servicer today or set up your payments on your online bank pay to get yourself in this savings mode. For more information, call us at 866-697-0101.