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Forget Bi-Weekly Mortgage Payments: Just Pay Extra Principal

Woman outside on laptop with papersThere are several different options to pay off a mortgage more quickly. Bi-weekly mortgage payments can be made or extra principal can be added to the normal monthly mortgage payment.

Check out our Mortgage Loan Options Guide here and learn more about our different loans.

With a bi-weekly plan, half of the mortgage payment is supposed to be made every two weeks.  Because there are 26 bi-weekly payments made each year, one extra payment will be applied to the mortgage each year.  This will usually enable the mortgage to be paid off five to six years early and there will be significant savings on the mortgage interest cost.  If a person is paid twice a month, bi-weekly mortgage payments may be easier to budget for.

However, there is a catch to the bi-weekly plan.  If you can find a lender who offers the service (rare), it will likely charge fees because of the servicing issues that come with it. If you find a third party servicer offering the option, you'll also pay fees. Plus, it's highly unlikely that this service is actually paying the mortgage every 2 weeks because your lender will not accept half-payments. In other words, the bi-weekly mortgage payment service is holding onto your money rather than paying your bill.  Some people may feel the fees are worth it.  However there is a way to accomplish the same thing with no fees whatsoever. It begs the question: Is a bi-weekly mortgage payment service a scam or a legitimate service?

Couple at laptop looking at papersExtra principal may be added to each monthly mortgage payment.  When a normal monthly mortgage payment is made, it is applied to both interest and principal.   However, when extra principal is added to any mortgage payment, it is applied directly toward the principal amount of the mortgage.  This reduces the amount due on the mortgage as well as reducing the amount of interest that will accrue.  The extra principal can be added to each monthly payment or it can be paid once a year in a lump sum.  To make extra monthly principal payments, simply take the amount of the normal monthly payment, divide it by twelve and add that amount to each of your monthly mortgage payments.

The advantage of paying extra principal versus bi-weekly mortgage payments is slight. The extra principal plan offers more flexibility and lower costs.  There are no fees involved when extra principal is added to a normal monthly mortgage payment.  The extra principal payment plan also offers a little more financial flexibility.  If an unforseen expense or hardship comes up one month, the extra principal payment may be skipped.  Extra money can also be added to the principal payment from bonuses, gifts, savings and extra earnings.  This option would not be available on a bi-weekly mortgage plan.  Either option will enable the mortgage to be paid off sooner and with less interest.  For most people, the easiest and most economical solution is to add extra principal to each monthly mortgage payment.  But either plan will shave significant time and interest off the mortgage.

You can learn more about the home buying and financing world with our eBook, "The  Loan Options Guide ." This free guide covers the options available in today's housing market, so you can decide what's best for you and your family. Get the free guide below.

Loan Options Guide



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