Bi-weekly and Bi-monthly mortgage payment plans
Once you
have found a home and have been approved for a mortgage,
there are still some other things to keep in mind.
There are actually a variety of options when paying your
monthly mortgage bill, which do not involve just paying
the monthly balance, on let’s say, the 1st of each
month.
The other payment plans include bi-weekly and bi-monthly
or semi-monthly mortgage
payment plans.
These alternative plans can actually save you a lot of
money in the long run, and enable you to pay
off your mortgage a lot sooner than you would using
a regular once-a-month mortgage payment plan.
The article, “Bi-weekly mortgage payment plans,”
featured on mortgage-x.com, explains some alternative
options to paying your monthly mortgage bill.
“With biweekly payments, you pay half of the monthly
mortgage payment every 2 weeks, rather than the full balance
once a month. This is comparable to 13 monthly payments
a year, which can result in faster payoff and lower overall
interest costs. For example, the biweekly mortgage payment
process can pay off a $200,000 30 year fixed loan at 7%
in approximately 24 years (75 months sooner than a standard
payment plan), with a total of $68,925 in interest savings.”
There are many different types of bi-weekly payment plans.
Two of the most common are the pseudo bi-weekly and the
true bi-weekly.
The pseudo bi-weekly involves the payments being accredited
to account managed by the lender, and then the lender
makes a monthly payment from this account.
The true bi-weekly payment plan works a little bit differently.
“In order to set up a true biweekly (or simple interest
biweekly) payment schedule, you must have a lender that
will immediately credit each 1/2 monthly payment upon
receipt. The lender must calculate interest for two-week
intervals and apply the biweekly payments less the interest
to reduce principal every two weeks.”
Bi-weekly payments are very different from bi-monthly
payments and should not be confused.
“With true bi-monthly (or semi-monthly) payments,
you pay half of the monthly payment twice a month (for
example, you pay 1/2 of the monthly payment on the 1st
of the month, and the other half on the 15th). There will
be a total of 24 semi-monthly payments in a twelve-month
period and the lender must not hold the payment until
the end of the month and apply it to the loan balance
right away.”
Bi-monthly payments do not save nearly as much money as
bi-weekly payments, and therefore, they are rarely used.
“With true bi-monthly (or semi-monthly) payments,
you pay half of the monthly payment twice a month (for
example, you pay 1/2 of the monthly payment on the 1st
of the month, and the other half on the 15th). There will
be a total of 24 semi-monthly payments in a twelve-month
period and the lender must not hold the payment until
the end of the month and apply it to the loan balance
right away. On a 30 year fixed mortgage, for example,
it will take 29 years and 11 months to pay off (1 month
sooner than a standard payment plan), and you will save
only one month's interest.”
Whether you choose a monthly, bi-monthly, or bi-weekly
plan, it is best that you research all of the options
first before you decide on one payment plan.
Back to Articles
