Jillian purchased her first home within the last year. She obtained a traditional 30-year, fixed-rate mortgage. The mortgage was payable in monthly installments. Since she moved in the house, Jillian has received numerous advertisements in the mail describing the tremendous savings that can be had through bi-weekly mortgage payment plans. It sounds like a good deal, but Jillian needs more information.
Today, many homeowners opt to pay their mortgage obligations through bi-weekly payment programs. In fact, many mortgage lenders allow homeowners to make the election when the homeowner obtains the financing to purchase a new home.
How Does It Work?
With a traditional mortgage payment plan, homeowners pay their mortgage obligation in monthly installments. Bi-weekly plans differ in that they require payments every two weeks. There are 52 weeks in a year; accordingly, a homeowner on a bi-weekly payment plan will make 26 bi-weekly payments each year. On such a plan, the homeowner makes the equivalent of one additional full monthly payment. The additional payment reduces the outstanding principal of the homeowner’s mortgage obligation and, thereby, reduces the amount of interest the homeowner pays over the life of the loan.
As stated above, many mortgage lenders allow homeowners to elect a bi-weekly plan. Third parties also can assist a homeowner in setting up such a plan. Any additional cost to set up such a plan cuts into the homeowner’s savings. Accordingly, there should be no additional cost to the homeowner to set up such a plan!