Many people already know that paying their mortgage payments bi-weekly or weekly is a good way to shave some time off their mortgage without overstretching their budget. In some instances, it can take as much as seven years off of a 30-year fixed mortgage. Dinkytown has a great calculator that will tell you how much bi-weekly payments will save you over the life of your loan. But are the bi-weekly payment services offered by mortgage companies worth the extra money?
Very good article. I love the calculator even more though, only problem is the calculator doesn't figure in extra payment amounts.
However, I must say that if you start making bi-weekly or weekly payments, don't use the mortgage company's accelerator program. They will charge you at least $1/week to do it as well as automatic payments from your checking or savings account. The better way is to make the payments your self, even if you use your banks online bill pay feature. Just make sure your monthly paynent amount arrives in total, by the due date.
In fact what I am doing with my car payment or soon will be (as soon I finish up the last 18 weeks of my "little" 2nd mortgage), is using the Dave Ramsey method and make bi-weekly payments of the total car payment. In most months that means I would be making the car payment twice.
I can only do this because, I recently got a raise and I payed off the larger mortgage. So the second car payment, would be what I had been paying to the mortgage company. By using both these methods, I will have a six year (72 months) loan paid off in approxmatly 2 years. Saving lots of interest, and keeping all that interest away from the car finance company. At which time, I will be debt free in the areas of loans, and can focus 100% on any remaining balance owed to the IRS.
Good article, Kevin.
ReplyDeleteYou're right. NEVER pay extra for the bi-weekly mortgage pay program. There's no magic to it...you're just making an extra payment every year.
There are 13 2-week periods in a year, but only 12 months. By making bi-weekly payments, you end up paying one extra payment per year.
I would suggest saving up that extra payment (by budgeting 1/12 of a payment every month) and simply applying the extra payment to the principal at the end of the year. Of course, you'll pay a little more interest on that ($70 on a $1000 per year), but it may be worth it if you don't want the hassle of keeping track of the payments up-front.
my friend has a 40-year mortgage. she wants to re-fi to a 30-year mortgage. she doesn't understand... if she just pays more each month, she can treat her 40-year mortgage like a 30-year, with no re-fi fee!
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