Advantages of using a Bi Weekly Payment Plan

• Accelerated Plans Reduce Interest and Help You Pay Off the Loan Faster

Do you want to pay less interest on your home loan? Of course you do, and it's not difficult. There are a few different methods you can use to reduce your total interest and pay off your mortgage at a faster rate.

Bi Weekly Payment Plans

You lender probably offers a bi-weekly mortgage payment plan, where you make a half-payment every two weeks instead of a full payment once each month.

By paying bi-weekly you'll make twenty-six half payments, or thirteen full payments each year--one more than you would make by sending  the lender traditional monthly payments.

Every dollar of that extra payment goes towards reducing te principal balance of your loan, the balance that future interest calculations are based on. As you reduce your principal, you reduce the total interest paid and the length of time it takes to pay the loan.

You current lender will not accept half payments mailes to them twice each month, but they'll likely set up a plan to deduct the payment from your bank account every other week. Many lenders charge a one-time fee to set up a bi-weekly payment plan.

Mortgage Examples

Let's look at a mortgage with a principal balance of $150,000, a term of 360 months, and an interest rate of 6%

• Monthly principal and interest payment = $899.33
• Total Interest During Life of Loan= $173,757

Using a Bi-Weekly Option

• Bi-Weekly Payment = $499.67
• Total Interest During Life of Loan=$135,294
• The loan is paid off in 24 years instead of 30

Most of us won't live in a single house for thirty years, but don't let that stop you from paying bi-weekly, because shorter term savings are signigicant.

The first figure out each line below shows the loan's principal balance at the end of that years monthly payments. The second figure shows how much principal remains at that saame t ime for someone making bi-weekly payments.

Year 1

$148,157 vs $147,198 ( Difference of $959)

Year 2

$146,202 vs $144,224 (Difference of $1978)

Year 3
$144,126 vs. $141,066 (Difference of $3060)

Year 4
$141,922 vs. $137,715 (Difference of $4207)

Year 5
$139,581 vs. $134,157 (Difference of $5424)

Year 6
$137,097 vs. $130,380 (Difference of $6717)

Year 7
$134,459 vs. $126,371 (Savings of $8088 to date)

Bi-Weekly Payment Alternatives

A bi-weekly plan forces us to stay on track with additional mortgage payments, but it's not the solution for everyone who wants to reduce their loan principal more quickly.

• Your lender might charge a hefty fee to initiate a bi-weekly payment plan
• You might not be in a position to pay extra every month
• You might not be able to pay the same amount every month
• It might be easier for you to make a lump sum payment once each year

Alternative's

One alternative is  to divide your yearly payment by twelve and add that figure to each monthly payment, designating it as a payment towards the principal balance. Your loan payment coupon might have a blank line for that purpose. If not, call your lender's customer service department and ask how to make additional payments towards the principal.

For the loan in the previous scenario. you would divide $899 by the twelve to find the extra amount to include with your payment, $75.

Your principal balance would equal the following amounts at the end of each year shown. The numbers in parentheses represent the balance due at the same point in time for someone on a bi-weekly plan.

• Year 1,$147,232 ($147,198)
• Year 2,$144,292 ($144,224)
• Year 3,$141,175 ($141,066)
• Year 4,$137,864 ($137,715)
• Year 5,$134,348 ($134,157)
• Year 6,$130,616 ($130,380)
• Year 7,$126,653 ($126,371)