Paying the mortgage biweekly
We are on a quest to pay off our mortgage early, so one of the things we looked into was the idea of paying the mortgage biweekly. If we did that, we would be making half of a mortgage payment every two weeks. That would amount to 26 half-payments per year, or 13 full payments. So it would be as if we were paying an extra mortgage payment each year, which would reduce the amount of interest we would be paying and reduce the total time it would take to pay off the loan.
That sounded reasonably good as a starting point to me, so I looked into it a little more. That’s when I discovered that the bank we had our mortgage through at the time charged a one-time fee to set up the biweekly payments. They also charged a small fee each month to do them. I saw no point in paying the bank an extra fee up front, plus an extra fee each month to do something that I could do for myself for free if I wanted to.
I also got to thinking that having the due dates for our mortgage fluctuate like that would annoy me. For example, right now our mortgage is due on the 1st, but if we had gone to paying biweekly it might have been due on the 1st, then 15th, then the 29th, then the 12th, etc. I like things to be consistent.
In the end, we decided against paying the mortgage biweekly due to the fees and inconvenience involved. If the service had been FREE, I might have been more interested. We decided instead to simply pay extra toward the principal every single month. We have a different mortgage company now, and they allowed us to set that extra amount up to happen automatically. We have also started sending in extra additional payments toward the principal each month. We make that payment manually online.
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January 16th, 2009 at 11:37 am
Paying 26 payments instead of 12 montly payments will allow the banks to get 13 interest paymetns out of you per year. Not only are they charging you fee’s for this service, they are collecting more interest from you. It is best to handle this one yourself and just send in one additional principal payment per year. You can save the money in a high interest savings account and pay yourself twice. Just send the additional money with your December payment and specify the amount as principal only on the bill.
January 17th, 2009 at 8:15 am
I have discovered that the paying down your loan can result in being cash poor when a need or emergency arises. There is another way to do the same thing and not leave you cash poor. Use the same money you would use to pay down the loan and put it in high yielding cds, etc. Then you are not cash poor yet if you want to pay down the loan you can at any time.