If you want to pay off your mortgage early, you may think your mortgage lender’s biweekly mortgage payment plan makes a lot of sense. However, biweekly mortgage payment plans don’t really work the way they should. Therefore, here are some FAQs to help you understand more about how biweekly mortgage plans actually work.

What is a biweekly mortgage payment plan?

A biweekly mortgage payment plan is a mortgage payment schedule through your lender in which you make half of your monthly mortgage payment every other week instead of paying the full amount once a month. You actually make 13 payments a year instead of 12, which accelerates your loan’s payoff schedule.

Should I sign up for a biweekly mortgage payment plan?

In theory, a biweekly mortgage payment plan through your lender sounds good since you think you’re:

• Paying less interest over time.
• Building equity faster.
• Getting rid of your mortgage ahead of schedule.

However, that’s not really what actually happens. You send in your biweekly payment and the company servicing your loan actually holds your payment until the second half of your monthly payment arrives. They only apply the money to your loan after they receive your full monthly payment. So you’re really still only making one payment a month – not two.

Therefore, you may think you’re saving money on interest, but you’re actually not. Additionally, the loan servicing company may actually be costing you money since they often charge fees to handle your mortgage payments.

How can I pay off my mortgage early?

First, you’ll want to check the terms of your mortgage to make sure you won’t get hit with a prepayment penalty if you pay extra or early. Then you can make extra payments to your mortgage at any time in a variety of ways.

• Add extra money to each of your monthly mortgage payments. For example, paying an additional $100 month can save you $22,463.76 in interest on a 30-year fixed loan at 4% interest. Plus, you’ll cut about 8.5 years off the life of your loan.
• Create your own biweekly payment plan. You don’t have to use a third-party processing company.
• Make one extra mortgage payment a year. Apply money from your tax return, your bonus check or a monetary gift to your mortgage.

However, make sure your extra payments are applied to your loan principal and not just the interest.

Hopefully, these FAQs have answered your questions about biweekly mortgage payment plans. If you still have questions, please call the mortgage specialists at Grandview Lending in Indianapolis. They can answer all your questions about mortgages and the mortgage process. Plus they can help you find the right mortgage loan for your needs.

Photo credit: 123RF / eye4detail