Bi-Weekly Payment Plans
Your lender probably offers a bi-weekly mortgage payment plan. where you make a half-payment every two weeks instead of a full payment once each month.
By paying bi-weekly you'll make twenty-six half payments, or thirteen full payments each year--one more than you would make by sending the lender traditional monthly payments.
Every dollar of that extra payment goes towards reducing the principal balance of your loan, the balance that future interest calculations are based on. As you reduce the principal, you reduce the total interest paid and the length of time it takes to pay the loan.
Your lender won't accept half payments mailed to them twice each month, but they'll likely set up a plan to deduct the payment from your bank account every other week. Many lenders charge a one-time fee
to set up a bi-weekly payment plan.
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Mortgage ExamplesLet's look at a mortgage with a principal balance of $150,000, a term of 360 months, and an interest rate of 6%.
- Monthly principal and interest payment = $899.33
Using a Bi-Weekly Option
- Bi-Weekly Payment = $449.67
The first figure on each line below shows the loan's principal balance at the end of that year's monthly payments. The second figure shows how much principal remains at that same time for someone making bi-weekly payments.
- Year 1
$148,157 vs. $147,198 (Difference of $959)