Last week we received an invitation from our mortgage servicing company to make our payments biweekly. It intrigued me so I did some research and wanted to share it with you.
- How it works: You pay half of your mortgage every two weeks. This coincides evenly with many paycheck schedules.
- Why it works: By making 26 payments of half your mortgage you are in effect making 13 monthly payments instead of the customary 12.
- The benefits: You can pay off your mortgage six to eight years early! You can save a large amount of money in interest (I'm talking over $20,000).
- The fine print: Of the top five mortgage-servicing institutions, four charge enrollment fees that range from $295-$379. Plus, there is a levy charge on every transaction (my offer was $1.50 per payment).
- Is it for you? If you like the convenience of having the bank automatically draft a payment that coincides with your biweekly paycheck and don't mind the extra fees it may be for you. But, is there a better way to spend this money? Are you making the maximum contribution to your retirement? How long are you planning to stay in your house? Would paying off your mortgage early help you reach other financial goals?
- If you get a bonus or tax refund each year, add the equivalent of one extra payment to your mortgage. Be sure to tell the bank that the additional money goes toward the principal!
- If you get paid biweekly, take half of your mortgage payment from each check and put it in a savings account. At the beginning of the month, write your mortgage check from that account. At least twice a year you'll be including the equivalent of an extra half-payment. Again, specify that the additional money goes against the principal.
We decided not to do the bi-weekly payments at this time because our house is on the market. What are your thoughts on this program?