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Why You Shouldn't Enroll In A Bi-Weekly Mortgage Payment Plan
By EchoBay Loans Staff Writer

Paying your mortgage on a bi-weekly basis is a great concept; that is unless you're planning on paying someone else to do it for you. Services abound promising consumers the ability to greatly reduce the length of their mortgages by offering them the chance to enroll in their biweekly mortgage payment plans - for a fee of course.

Their logic is that by providing you with this valuable service that will be saving you so much money in the long run, it's only right that they should charge you fees to make it worth their time to do this for you. In one aspect, they're right. Saving thousands of dollars and shortening the term of one's mortgage is something that is priceless to consumers.

However, there's also the age-old adage that says "don't pay someone else to do something that you can do yourself." In reality, pretty much anyone can do the same exact thing that these services are charging fees (and sometimes astronomical fees at that) to do. The companies that offer to enroll you in a bi-weekly mortgage payment plan don't hold a wand that magically reduces the duration of your mortgage, and they don't have a special arrangement worked out with your mortgage company.

What they do have, is a system that anyone can do if they know how. The reason that a mortgage's duration is reduced with a bi-weekly mortgage plan is because the plan essentially has you making an extra mortgage payment each year by paying your mortgage every two weeks instead of once each month. While it may not seem like one extra mortgage payment each year could substantially reduce the duration of your mortgage, and it really doesn't seem like it could save you thousands of dollars over the course of the mortgage loan, one extra mortgage payment each year can do just that.

That is because that extra payment isn't going towards interest; the entire payment is going directly towards the principal of the loan. The result can be thousands of dollars in savings and years shaved off the life of your mortgage.

Let's assume that you have a $200,000 mortgage with an interest rate of 6 percent. If you were to pay just your monthly mortgage payment each month for 30 years, over those 30 years you would pay a total of $231,636 in interest on your home purchase. Now let's figure that you paid just one extra payment each year towards the principal of your mortgage balance. Instead of paying a total of $231,636 in interest, you would now be paying a total of $180,392 in interest and instead of paying your mortgage for 30 years, your mortgage would be paid off in 24 years. This is a savings of $51,244 over the course of your mortgage and your mortgage will be paid of 6 years early.

This extra yearly payment doesn't have to all be paid at once. You can take the amount of your mortgage payment, divide it by 12, and then add that amount to your monthly mortgage payment to be applied towards the principal. This will be accomplishing the same results. For example, if your mortgage payment were $900 each month, you would divide it by twelve and pay $75 extra each month, bringing your mortgage payment to a total of $975. Whether you pay the entire payment of $900 once a year or just pay the extra $75 each month can depend on your personal preferences and situation, as the outcome will be the same.

Consumers who have 30-year mortgages aren't the only ones who can benefit from making an extra payment each year. People who have 15-year mortgages can also save a substantial amount of money by using this method. For example, if you have a 15-year mortgage of $200,000 at an interest rate of 6 percent, your monthly payment would equal $1,687 and you would pay a total of $103,788 in interest over the life of your loan. However, if you were to only make one extra payment of $1,687 each year or were to add about $140.50 to your mortgage payment each month, you would pay a total of $89,326 in interest and your home would be paid off in 13 years instead of 15. This is a savings total of $14,462 and you're paying your mortgage off 2 years early.

When you do the math, it makes sense to use the concept that the companies offering biweekly mortgage payment plans use, but it doesn't make sense to pay them a fee to do it for you once you realize how simple it actually is to do yourself. By doing it this way, you not only save yourself the money that paying off your mortgage early enables you to save, but you also save the money that you would have otherwise paid to one of the bi-weekly mortgage payment plan companies.


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