Do you want to pay off your mortgage early? If so, you may be thinking about getting on a biweekly payment plan. This method is commonly recommended to homeowners who want to pay off their loans more quickly so that they ultimately pay less in interest over the lifetimes of their loans.
Biweekly payment plans can work if you do them correctly. If you take the wrong approach, however, a biweekly payment plan may end up doing nothing for you. This post will explain the correct way to set up a biweekly payment plan.
What is a Biweekly Payment Plan?
A biweekly payment plan is one where you submit payments on your mortgage twice a month (every two weeks) instead of once a month.
Over the course of the year, paying in this manner adds up to 13 payments rather than 12.
- Here is the right way to do a biweekly payment plan: The best way to make sure that a biweekly payment plan works out is to set up the biweekly plan yourself manually through your bank account. Avoid using a third party processing company that offers to set up a payment plan for you. We will explain why below. When you set up the biweekly payment plan, make sure that you specify that the extra money should go toward paying off the principal of the loan, not interest. And make sure you tell the loan servicer that you want each payment processed immediately.
- Here is the wrong way to do a biweekly payment plan: What you should not do is use a third party payment processing company and pay twice a month, assuming everything will work out. There are a couple of ways this can go wrong. The first issue is that third parties often do not manage these extra payments correctly. When you send in the first payment of the month, the servicer doesn’t know what it’s for, and just hangs onto it as an incomplete payment. They process it only when the second payment of the month shows up. The result is that you only make one payment a month, not two. The other issue with using a third party to manage a biweekly payment plan is that for the “service” they are providing you, they will charge you fees. Those eat into the money you are trying to save by adopting a biweekly payment plan in the first place. That is just another reason to avoid doing it that way. Just take care of it yourself, providing explicit instructions for how your payments are to be received and applied.
We Support You Through Every Stage of Your Mortgage
Grandview Lending supports homebuyers and homeowners through the entire mortgage application process, and then for the rest of the time they are paying off their loans. If you have questions about how you can pay your mortgage off more quickly, or are interested in refinancing, please give us a call at (317) 255-0062 to schedule a consultation.
