Is there a benefit to making bi-weekly mortgage payments? Absolutely! However you have to be careful and do some homework about your current bank before committing to do so. Some banks offer this as an option and others do not. That isn’t to say you can’t set this up yourself but you have to do it properly.
What is the benefit?
The one major benefit of making bi-weekly payments is you are in essence making one extra payment per year. If you are making monthly payments you are making 12 payments annually. If you make bi-weekly payments (52 weeks in a year) then you are making 26 payments. This works out to making 13 monthly payments throughout the year. The savings to you are massive as you are reducing your term by roughly 7 years and can save you huge on the interest on your home. For specific savings you can look at Bankrate’s comparison calculator HERE.
What to be Careful with..
There are companies that will process payments like this for you, however, in most cases they are charging a fee to do this. You would only consider this option if your bank doesn’t currently offer a bi-weekly payment option. Your first step is to call your bank and ask if they offer this option. Also, be sure to ask if your bank has a pre-payment penalty on your loan as you don’t want to incur penalties for doing this.
If your bank doesn’t offer bi-weekly payments your best recourse is to do a little math (take your monthly payment and divide it by 12). Once you have that amount you can either save that monthly and make that payment once throughout the year. Your other option is that you can pay that amount every month on automatic payments. Be sure that no matter the route you decide to go that you are selecting “principal-only” when choosing how to apply that extra payment.
If you have any questions on this process or other ideas you have about paying your loan off early please feel free to contact me at anytime!