Bi Weekly Mortgage Payments

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Quote from jofeda : I recently refinanced my mortgage to a 30yr fixed and my loan service provider is offering a biweekly payments program. A 400 dollar sign up fee and $1.25 extra per payment. Looking into it further it would come to 26 payments annually roughly an extra full payment(extra two include prepaying interest). They say it will shave 6 years or so off my 30 years and save a bunch of money long term. But still 400 at sign up and at 24 years that 1.25 charge adds up to $780. That is over a grand through the course of the the loan. Am I missing something? Shouldn't I just annually prepay an extra 13th payment going completely against principle and not sign up for this program?

No you're not missing something. These programs are completely stupid unless they're free.

Keep in mind the "savings" doesn't take into account your total portfolio of loans. You are saving nothing, actually spending more, if you have other higher interest loans out.

Given where interest rates are right now I would take all 30 years to pay off that loan. Once you give the money to the bank you can't get it back so saving the money to avoid car loans or investing is a wiser choice IMO. I know returns on investments aren't high right now but they will be eventually, it wasn't too long ago you could buy a CD with a 5% return.

Thanks for the feed back. Yall

the funny part is that to get around this, and to not have to write all sorts of farking checks, you could use the bank's own billpay system to pay themselves

Drop it. Use the $400 to pay on principal and you would already be ahead of this silly program.

If looking to pay faster for best payoff at an affordable rate is to pay 1/12 extra of current payment every month. It's proven to out perform 2x monthly payments an much better than 1 full payment per year. On a 30 year paying 1/12 extra bring u down to approx 22-23 years without looking up the amortization chart. And won't cost u money for fee.

- sent by iPhone App Deals & Steals 3.5.8 -

Sheltonct got it right. I pay $100 extra towards principle every month and it took 7.5 years off my mortgage. Just make sure when you make the additional payment that you note it is towards Principle.

Quote from Sheltonct : If looking to pay faster for best payoff at an affordable rate is to pay 1/12 extra of current payment every month. It's proven to out perform 2x monthly payments an much better than 1 full payment per year. On a 30 year paying 1/12 extra bring u down to approx 22-23 years without looking up the amortization chart. And won't cost u money for fee. - sent by iPhone App Deals & Steals 3.5.8 -

While most of these "bi-monthly mortgage payment" letters you get in the mail are a complete sham (they hoard your money until the end of the month, charge you outrageous convenience fees, etc.), the idea of paying twice a month (aka every two weeks) will certainly save you money. And as you stated, paying an additional 1/12th a monthly payment at the end of the month will save you money in the end as well.

However, paying 1/12th a monthly payment at the end of the month will NOT necessarily save you more money than paying every two weeks!

If you pay every two weeks, that means you'll have a total of 26 half-month payments, or the equivalent of 13 full-month payments made each year. If you pay your 1/12th extra every month, you'll also have the equivalent of 13 full-month payments made each year. However, if you take that extra 1-month worth of payment that you make overall, and split it up into 26 chunks and spread it out over the year, you may or may not save more money by doing so. It all depends on when you make the payment.

Example:

Let's assume a $100,000, 30-year mortgage at 5% interest.

With a normal payment once a month, at the beginning of the month, you'll make a monthly payment of $536.82 a month, and have paid an additional $93,255.78 in interest.

If you pay an additional 1/12th of a monthly payment every month (additional $44.74 a month), you'll pay off the mortgage 4 years, 8 months early, and have paid an additional $76,287.61 in interest. This saves you $16,968.17.

If you make a mortgage payment every two weeks of 1/26th of a total payment ($268.41 a payment), you'll pay off the mortgage early, and have paid an additional $75,488.85 in interest. This saves you $798.76 in interest off of the 1/12 additional payments each month.

This is dependent heavily on when exactly you make your monthly mortgage payment. But by paying every two weeks instead of once a month, you effectively start pushing your payments earlier in the payment cycle. Example, if you may both types of payments on January 1, you'll make the second payment of the bi-weekly on January 15th, and the third payment on January 29th. This beats the second payment of the monthly payments by 2 days, since it won't get paid until February 1st. So, a monthly + 1/12th payment doesn't necessarily perform better than an every-two-weeks payment.

Quote from ElectroWolf : While most of these "bi-monthly mortgage payment" letters you get in the mail are a complete sham (they hoard your money until the end of the month, charge you outrageous convenience fees, etc.), the idea of paying twice a month (aka every two weeks) will certainly save you money. And as you stated, paying an additional 1/12th a monthly payment at the end of the month will save you money in the end as well. However, paying 1/12th a monthly payment at the end of the month will NOT necessarily save you more money than paying every two weeks! If you pay every two weeks, that means you'll have a total of 26 half-month payments, or the equivalent of 13 full-month payments made each year. If you pay your 1/12th extra every month, you'll also have the equivalent of 13 full-month payments made each year. However, if you take that extra 1-month worth of payment that you make overall, and split it up into 26 chunks and spread it out over the year, you may or may not save more money by doing so. It all depends on when you make the payment. Example: Let's assume a $100,000, 30-year mortgage at 5% interest. With a normal payment once a month, at the beginning of the month, you'll make a monthly payment of $536.82 a month, and have paid an additional $93,255.78 in interest. If you pay an additional 1/12th of a monthly payment every month (additional $44.74 a month), you'll pay off the mortgage 4 years, 8 months early, and have paid an additional $76,287.61 in interest. This saves you $16,968.17. If you make a mortgage payment every two weeks of 1/26th of a total payment ($268.41 a payment), you'll pay off the mortgage early, and have paid an additional $75,488.85 in interest. This saves you $798.76 in interest off of the 1/12 additional payments each month. This is dependent heavily on when exactly you make your monthly mortgage payment. But by paying every two weeks instead of once a month, you effectively start pushing your payments earlier in the payment cycle. Example, if you may both types of payments on January 1, you'll make the second payment of the bi-weekly on January 15th, and the third payment on January 29th. This beats the second payment of the monthly payments by 2 days, since it won't get paid until February 1st. So, a monthly + 1/12th payment doesn't necessarily perform better than an every-two-weeks payment.

1/12 payments save me more over the biweekly. Everyone should just run the calculators to see what works best.