After closing on a new mortgage loan, many homeowners get a call from the mortgage companies trying to sell them a biweekly payment plan. For the small fee of $395 they'll switch you over to biweekly payments and you’ll save thousands of dollars paying off the mortgages years ahead of schedule. Here are tips to help you decide if making biweekly payments is right for you.
While you can pay off your mortgage quicker making biweekly payments and save money, you don’t have to pay your mortgage lender $395 to do it.
The company servicing your mortgage loan wants you to believe that their payment plan will be processing all of your extra payments and should therefore receive an administration fee. A reality check simply says all you need to do is send in the extra payments prior to your due date each month. This will ensure your payments are always up to date and make one extra monthly payment every year. You could also just send in one additional payment at the end of the year with a note stating this payment should be applied to loan principle.
Making this extra payment every year effectively cuts your 30 year mortgage down to just over 22 years. An alternative strategy is to divide your monthly payment amount by 12 and pay that amount on top of your regular monthly payment. Making this extra payment each year not only reduces your loan principle, but also changes your amortization so you are paying less mortgage interest every year you do this.
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