Can I Do My Own Biweekly Mortgage?
September 24, 2001, Revised November 21, 2006
"I would like to pay my mortgage every two weeks. My mortgage has no prepayment penalty. I have spoken with my mortgage company, and of course, they have a service that costs $400 to do it for me. Do I have the right to do it myself?"
You don't have the right to make biweekly payments. Your note calls for monthly payments. However, you can do exactly the same thing that your mortgage company would do. This is to place your biweekly payments in a bank account, each month withdrawing the amount needed to make the monthly payment.
The balance in the account will gradually rise because you are making 26 biweekly payments a year, which is the equivalent of 13 monthly payments. After 12 months, there will be enough in the account for a double payment. You would save the $400 and also retain the interest earned on the account. Just make sure that your extra payment includes a note stating that the additional payment is to reduce principal, and is not an advance payment for the following month.
There is an easier way to accomplish the same goal. Divide your monthly payment by 12, and add that amount to your payment every month. Doing it this way will actually pay off the loan sooner than if you convert to a biweekly. You start reducing the balance (and interest on that balance) with the first additional payment, whereas with a biweekly it takes a year before you begin reducing the balance.
For example, on a $100,000 8% loan for 30 years, a biweekly will pay off in 277 months and save $44,160 in interest payments. Adding 1/12 to the payment results in payoff in 275 months and saves $45,901 in interest.
"I would like to pay my mortgage every two weeks. My mortgage has no prepayment penalty. I have spoken with my mortgage company, and of course, they have a service that costs $400 to do it for me. Do I have the right to do it myself?"
You don't have the right to make biweekly payments. Your note calls for monthly payments. However, you can do exactly the same thing that your mortgage company would do. This is to place your biweekly payments in a bank account, each month withdrawing the amount needed to make the monthly payment.
The balance in the account will gradually rise because you are making 26 biweekly payments a year, which is the equivalent of 13 monthly payments. After 12 months, there will be enough in the account for a double payment. You would save the $400 and also retain the interest earned on the account. Just make sure that your extra payment includes a note stating that the additional payment is to reduce principal, and is not an advance payment for the following month.
There is an easier way to accomplish the same goal. Divide your monthly payment by 12, and add that amount to your payment every month. Doing it this way will actually pay off the loan sooner than if you convert to a biweekly. You start reducing the balance (and interest on that balance) with the first additional payment, whereas with a biweekly it takes a year before you begin reducing the balance.
For example, on a $100,000 8% loan for 30 years, a biweekly will pay off in 277 months and save $44,160 in interest payments. Adding 1/12 to the payment results in payoff in 275 months and saves $45,901 in interest.