How to Save BIG Money on Your Mortgage

Many people don't know is they can save a lot of money on their mortgage by using a bi-weekly mortgage. You may or may not have heard of the bi-weekly mortgage. (Actually, it’s not new at all.) If you have, you may even have dismissed it as a scam to take your money. People have been charged as much as $500 or more for “initial fees”, “setup fees”, or “membership fees”, along with monthly service charges. This, however, was in fact not a scam. Some banks even began offering these programs.

The plain truth of the matter is that you don’t need to pay a bank or anyone else to put you into a bi-weekly “conversion”. This is a concept that you can quite easily administer yourself. And it costs you nothing. All that you will actually be doing is changing slightly the way in which you make your monthly mortgage payment.

You see, normally you would make twelve monthly payments per year, correct? (Obviously.) But what if you were to split your mortgage payment and pay an amount equal to one half of it, say, every other Friday? (This actually makes sense because it corresponds more directly with the way in which most Americans receive their paychecks.) Over the course of one year that would add up to 26 of these half-payments. (There are 26 two-week periods in one year. 26 x 2 weeks = 52 weeks = 1 year.) Now, if you’ve made 26 half-payments, it would mean that you’ve made 13 full mortgage payments. By simply splitting your payment in half and paying it every two weeks, you’re actually making one additional payment!

But is the bank going to allow you to do this? Probably not. Banks are generally not set up to handle half-payments, or even two-week time periods. So, how do you do it? Very easily, actually. Just open another checking or savings account and deposit those half-payments into it every two weeks. Then when your normal mortgage payment is due, make that payment from the new account. After the course of one year there will be enough funds left in the account to make one additional normal payment (26 bi-weekly payments, remember?). So along with the 12th normal payment you make an additional full payment, which should be applied to you your principal balance.

Be sure to specify to the bank that this extra money is to be applied to the principal balance only. Banks have been notorious for making incorrect applications of money in the past. You must also be sure that the extra payment does not trigger a prepayment penalty in your mortgage contract. This is very unlikely, but it’s better to be safe and sure than to be sorry. So check you mortgage paperwork. For most modern loans, if a prepayment clause does exist, it would only go into effect for a much higher prepayment amount than the one additional monthly payment that you would be making (say, 20 to 25% prepayment in a year, for example).

By simply making this one extra payment yearly, you can cut the repayment period of a 30-year loan to 24 years, and you can save yourself literally tens of thousands of dollars of interest charges! If you could afford to add a little more money to each bi-weekly payment, the savings would be even more dramatic. But you have to be diligent and disciplined in order to reap these advantages. You must begin this plan and continue with it, every two weeks, year in and year out. You must develop the mindset that this is how you pay your mortgage.

Take a look at our Standard vs. Bi-Weekly Calculator. Play around with the numbers and see the kind of savings that can be had. Then, take action. You can do it. It’s easy.

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