As a homeowner, with a mortgage you’ve likely come across offers for mortgage payment plans from your lender or other companies. Lets take a look at what a biweekly payment program entails and whether it can help you cut costs.
What Does a Biweekly Payment Program Involve?
With a mortgage payment plan you make half of your mortgage payment every two weeks.
By doing this you end up making 26 half payments which’s equivalent to 13 full monthly payments per year instead of the usual 12.
This method does result in an increase in your budget but spreading it out over two payments each month instead of one may make it more manageable for you. (Keep in mind that everyones financial situation is unique. It’s important to assess whether this strategy aligns with your budget.)
The benefits are significant. If you initiate a payment plan right, from the start of paying off a 30 year fixed loan you could potentially pay off the loan four to six years earlier. Save thousands of dollars.
For instance if you have a $200,000 30 year fixed loan at an interest rate of 4.5 percent following a plan could lead to savings amounting to $27,240. Enable you to clear your debt four years and four months ahead of schedule.
What Are the Risks Associated with a Biweekly Payment Program?
Certain biweekly payment programs, those offered by companies rather than your loan provider may come with additional charges for their services.
These programs might entail fees, as well as minor fees for each biweekly payment processed. It could take up to a decade for individuals enrolled in plans with fees to recover their expenses . If you decide to sell or refinance before that period elapses the fees could outweigh any potential savings.
The Consumer Financial Protection Bureau, the body in the mortgage industry has expressed disapproval of such fee structures. This is advantageous for consumers as it helps eliminate vendors charging fees.
However determining which third party providers are reliable can be challenging. Therefore it is advisable to opt for a payment plan offered by your loan provider that sends your monthly statements.
Typically most lenders do not impose charges for this service. It is recommended to inquire with your lender about the terms of their payment plan.
Another Suggestion For Maximizing Benefits, from Biweekly Payment Methodology
You have another option to achieve the objective without incurring any fees by handling it on your own.
To put it simply mimicking a payment plan involves making a monthly payment each year.
For instance with the $200,000 loan scenario mentioned earlier your mortgage payment amounts to $1,013.37, per month for 12 months. By making that payment amount a time annually the entire $1,013.37 on that additional payment goes towards reducing the principal balance leading you to pay off your loan four years and four months sooner.
Alternatively you can divide the $1,013.37 by 12 months. Add $84.45 towards the principal every month. The outcome remains
unchanged;
you’ll clear off your loan four years and four months ahead of schedule.
This can be accomplished through utilizing the ‘Additional Principal’ feature, on your mortgage statements.
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