Normally, you make twelve mortgage payments a year. Since there are fifty-two weeks in a year, a biweekly mortgage equals 26 half-payments a year. The equivalent would be making thirteen mortgage payments a year instead of twelve. By applying that extra payment directly to the loan balance as a principal reduction, your loan amortizes more quickly, requiring fewer payments. You save money. You save a lot of money.
How it Works:
You cannot simply mail in half a payment every two weeks to your mortgage lender. Since they do not accept partial payments for legal and accounting reasons, the mortgage company would just mail your half-payment back to you.
Instead you set up a personalized program with a reputable company as the intermediary between you and your mortgage lender. They automatically debit your checking account every two weeks for half of your mortgage payment, then place your funds into a trust account. Basically, this is just a holding account for your money. In another two weeks, there is another automatic deduction from your checking account, and so on. When your mortgage payment is due, your funds are withdrawn from the trust account and forwarded to your mortgage lender. Amongst other things, this also means no more missed payments or late fees.
Since you are placing funds into the trust account faster than your mortgage payments are due, you eventually accumulate enough money to make an "extra" payment. The way the cycle works, this occurs once a year. The extra payment is applied directly to your principal balance, which causes your loan to amortize faster, pay off more quickly and save you thousands of dollars.
Your mortgage lender is not likely to tell you this because they lose money. If you ask them, chances are they will want to charge you a bunch of fees and maybe even refinance. We do charge a set up fee but there are no closing costs, no refinancing, no points, no credit checks and no appraisals.
By making principal reductions using the simulated biweekly mortgage program, your mortgage will amortize more quickly, saving you money. How quickly your loan pays off depends on your interest rate and when you begin your program. On a $100,000 loan at today's interest rate of eight percent, your first principal reduction would probably be a year from now. Assuming the principal reduction is equal to one monthly payment, you would save $44, 166.22 over the life of the loan and pay it off almost seven years early.
Instead of hiring a company to manage your biweekly payment, you could accomplish essentially the same thing on your own for free. Just take your monthly payment, divide it by twelve, and add that amount to your monthly mortgage payment. Be sure to earmark it as a principal reduction. Sounds easy right? Only if your mortgage company is willing to work with you AND you don't make excuses about applying the extra funds. If you plan to do this yourself, we recommend staying on top of them for the first few initial payments until you are sure it is being credited properly. So, yes you can do this yourself – but will you?
Most homeowners are not disciplined enough to follow through with principal reduction plans on their own. Something will come up and that 'extra' money will be spent and the potential long term savings will be lost. The reason for setting up your own biweekly mortgage is that it enforces discipline upon you in such a seamless way that it is barely noticable, and by doing so, we save you a lot of money. Since the deduction occurs automatically, self-discipline is not a problem.
If your goal is principal reduction, equity building and saving money, then this the plan we offer may be a good plan for you. If you do it on your own instead of paying someone else to do it for you, then it is a great plan. But if you know yourself and know that you will not do it on your own, then set up an account today that will guarantee a huge savings and a reduction in the amount of time it will take you to get your mortgage paid off.