What is all the fuss about the Bi-Weekly mortgage payment?
We have all heard of it and seen the mailer (from the bank who holds our loan): Pay a small set up fee + between .25 – $2.00 by weekly withdraw and they will cut the interest over the life of your loan.
So, here is what I found while working up some numbers for a client.
On a $114,400 loan amount paid on a 30 year schedule, the interest at the end of the loan would be $118,081.09. Set up a bi- weekly payment plan and that drops to $95,856.64.
But have you heard the old saying "divide your mortgage payment by 12, and add that to your mortgage each month"?
If you do that for this loan, that is an extra $97.84 each month and it takes the interest to $84,264.06. Granted, each loan size will have its own calculations but the figures are very interesting. The easy, do it yourself program might be the best plan after all.
Lastly, pay attention to the stories some people tell about adding extra to their mortgage payment and having it misapplied. That does create a hassle. Julie and I use our banks on line bill pay and set a separate payee for our home mortgage lender. When we send in extra money we send two checks: one with the regular mortgage payment and a second with the extra for principal reduction.
I hope this was helpful. Do you have an extra payment or biweekly story?
Davis Family Lending, LLC
Geoffrey is the “Frisco Mortgage Guy”!