Bi-weekly mortgage question

[cornfused]

When I bought my first house I recieved in the mail a letter. It said that if you sign up for biweekly mortgage payments that you would pay off the loan several years early and save tens of thousands of dollars in interest.

Being young at the time I didn't believe it or pay any attention to it. Since then I have heard a few things of this being true but I don't know of anyone that has done this. So my question is has anyone actually done this or heard anything about it good or bad?

Thanks in advance, Bryan

 

[Gary Allan]

It's mostly a con to make additional fees. You can do the same thing by just adding the same amount to monthly installment.

The way the deal worked is that you paid bi-weekly into an account that automatically transferred/debited at a 4 week rate. That would mean 13 monthly installments with the 13th actually being much more due to the lack of escrow needs.

The needless scam part of it is that they usually want you to put $100 in the sending and receiving account ..and $350 to set it up. I consider anyone who offers this the equivalent of the salesman who offers you ScotchGuard upholstery protector.

All you need is the (typically free) software from your bank and just add 1/12 the payment on each installment. It will give you your 13th payment.

You can also just calculate the amortization of the loan and add the last payment's principle to the first payment and back up/out from there. This will automatically shorten your loan in half. It will also mean that your last payment will be double the principle amount.

 

[SKG_CRD]

Well I am not sure how banking works in the US but in Canada the Bi Weekly payments essentially works out to 4 extra payments in a year thus why your MTG is paid off early.

If you can afford to then by all means do it, if not don't sweat it. Everyone needs a place to live and where I live rent is the same price as a 250k mtg.

Cheers,

 

[Gary Allan]

Originally Posted By: SKG_CRD
Well I am not sure how banking works in the US but in Canada the Bi Weekly payments essentially works out to 4 extra payments in a year thus why your MTG is paid off early.

If you can afford to then by all means do it, if not don't sweat it. Everyone needs a place to live and where I live rent is the same price as a 250k mtg.

Cheers,


Yes.

Let's do it the long way around. You're paid bi-weekly. You have 1/2 of your mortgage payment drafted into a separate account that is scheduled to pay your MONTHLY mortgage payment every 4 WEEKS.

You'll make 26 biweekly contributions. Your mortgage company will see 13 payments in a 12 month period.

No fees involved.

 

[mechtech2]

Scotchgaurd is OK. It works.

 

[Carbon]

If the offer comes from the people who hold your mortgage, biweekly mortgage payments may be worth considering. If it is from a third party who gets your payments and forwards money to your bank, you probably should avoid that.

 

[Gary Allan]

I'll treat your upholstery for $250 ..or the total package of undercoating, paint sealer and vinyl UV stabilizer for $999.99. There's a promotion this month for my $28 worth of chemicals and 2 hours of labor.

 

[cornfused]

Thanks for the replies guys.
I'm still listening and searching.

 

[greenaccord02]

Just overpay on your payments and keep track of the progress on a loan amortization spreadsheet. You will pay off the loan early and with much less interest. Because of the way the math works, it's better to pay more right at the beginning of the term, as that will have a greater effect on the accrued interest. If you work the math it's amazing how just a little bit extra on each loan payment will lower the total amount.

There's no penalty for this as it's illegal to levy a fee for paying in advance on a loan. As far as doing it bi-weekly, I don't see the point. Just do it monthly and throw more money at it.

 

[eljefino]

If your loan is serviced by a local bank see if you can open an account there and link them with online banking. Paycheck goes in... mortgage goes out.

I know I at least have highs and lows as I save paychecks for the monthly payment. That week or two in checking isn't earning me much in interest, and the biweekly pay doesn't really line up with monthly payments anyway.

If you still have PMI that's another good reason to eat rice and beans for a few years to shake that monkey off your back. Whole lotta good it did everyone anyway with the recent meltdown.

 

[dwendt44]

A friend used to send in extra with each payment.
He found out that the bank was taking interst out of the extra just as it did/does with the regular monthly payment.
SOooo. he now sends in a second check with the first one, this extra amount is 'principle only'.
Saves a lot of money over the years.

 

[greenaccord02]

It may be a state-by-state thing or just a per-loan arrangement, but anything over the owed amount we pay is automatically principal only. You check a little box on the payment stub that says something to the effect of, 'I am including a principal reduction payment in addition to my monthly payment' It's the same way with my car. The former is with BoA, the latter Chase.