Sending your lender an additional mortgage payment each month is one way to pay your loan off ahead of schedule. Lenders and third-party companies establish biweekly payment programs for homeowners who want help managing payments. Service providers typically charge up-front and recurring fees. It's important to calculate the biweekly mortgage savings before signing up for a plan at a cost. You can also arrange a biweekly payment schedule on your own for free, but it takes more effort and organization.
Lenders require you to send in at least 12 payments per year -- one payment per month. By making two payments every month, each equal to half of the monthly payment due, you actually make a total of 26 payments, or the equivalent of 13 payments per year. Over several years of following the biweekly payment plan, the additional payment each year can add up to thousands of dollars saved on interest. You can also shave years off your repayment term, depending on how many years you stick to the plan.
How quickly your loan pays off and the savings you get depend on your loan's interest rate and when you begin making biweekly payments. Because calculating mortgage repayment involves amortization -- the gradual shrinking of your loan balance from making partial payments towards interest and principal each month -- it is best to use a calculator with an amortization feature. A biweekly mortgage payment calculator requires you to input your loan balance, interest rate and the repayment term in years or months.
As of early 2012, the national average for a mortgage was about $222,000, according to the National Association of Realtors. Your new loan amount of $200,000 is due in 30 years. You begin biweekly payments from the beginning of your repayment term, and you have a 4-percent interest rate that's fixed for the life of the loan. The standard monthly payment is $954.83 and the biweekly payment is half, or $477.42. A biweekly mortgage calculation of the loan shows that you end up paying the loan off in 25 years, or 5 years early. The total interest paid on the biweekly plan is $120,360.32, compared to $143,739.01 on the standard payment schedule. You save $23,378.69 in interest.
You may choose to pay a service provider to keep you on track. Typically, service providers charge about $200 to $400 up-front and a minor fee for each transaction, or payment processed. For example, a company charges you a one-time set-up fee of $350 and $1.50 per transaction, which is also typical. The biweekly plan costs $39 (1.5 multiplied by 26 weeks) plus $350, for a total of $389 the first year. Assuming transactions fees never increase and you started the program when you got the loan, you can expect to pay $936 in fees for 24 more years. You end up spending $1,325 in fees after 25 years. To avoid having fees eat away at your savings, you can forgo a service provider and send in payments yourself. Also, some lenders don't charge for a biweekly payment option.
- Bankrate: Biweekly Mortgage Calculator
- Real Estate ABC: The Bi-Weekly Mortgage - Who Needs It?
- New York Times: The Benefits of a Biweekly Mortgage Plan
- Los Angeles Times: Don't Pay A Fee To Enroll In Biweekly Mortgage Payment Plan
- National Association of Realtors: What Does the Average Home Owner Pay on a Mortgage?
- Thinkstock Images/Comstock/Getty Images
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