Have you ever been approached my your mortgage company or another company to join a bi-monthly payment program?
They usually want to charge you a $250-$500 setup fee. Then they want you to send in half of your payment ever two weeks. So lets figure this out. Let's say your mortgage payment is $2000 a month. So normally you would send in a total of $24,000 a year.
But this new bi-monthly company wants you to send in a $1000 every two weeks. They hold the first $1000 until you send in the the second $1000. Then they send in your mortgage payment.
So each payment they are charging you a $3 - $6 processing fee. But the essence of the program is that they are getting you to put more money on the principal each year. But what they are doing is collecting an extra mortgage payment each year. There are 52 weeks in a year and you are paying a half a payment every two weeks.
So if you make 26 payments of $1000 it adds up to $26,000. $2000 more a year added to your principal. That's how the bi-monthly program works.
But what is neat about all of this is that you can do it your self and save yourself the set up fee. You can save the processing charge each month too. All you have to do is send in an extra payment a year. Divide your payment by 12 and add that to your payment each month.
By adding 1/12 of your payment each month you can cut off about 7 to 7 1/2 years off your mortgage. You can save thousands of dollars in interest by doing the bi-weekly program.
__________________________________________________________
My Month of April quote:
"Sometimes the only way to get to the far shore is to lose sight of the shore you just left"
Russ Ravary
"helping make your move easier"
your local Metro Detroit Realtor helping clients like you sell and buy homes through out the entire Metro Detroit suburbs. I love showing and selling Oakland County and Livingston County Lake front homes too.
Russ, you are absolutely right that you can do this yourself. I never understood why everyone just didn't do it like this without the extra cost.
I've never understood why someone would get, say, a $100,000 loan at a mere 7% and actually want to pay it off early. Real estate is not considered a liquid asset, so if you needed money in an emergency, you're looking at 30 days or longer to get some money out of your home equity. So instead of making an extra payment on a house mortgage, put that extra money into a diversified retirement portfolio.
Russ, You are right... I paid my home off early by adding an additional $75 a month to the payment. Feels good not to have a mortgage payment...
Russ, this is a good way to explain how you can pay off the mortgage early. My readers in my weekly newsletter need to see this. Do you mind if I link to you this week? Thanks for stopping by my blog!
Russ, THANKS for explaining this in such an easy-to-comprehend manner. I get it, but wonder how many lay people do. Excellent post. Kudos. ~Pat
I did get one of these in the mail. I glanced at it but did not see a set up fee. Thanks for saving me some cash!
Great info. I just wanted to let you and your bloggers know that Equity Express is now offering free biweekly conversions on existing and new mortgages. Normally costing a few hundred dollars, it's now free to the consumer to help ease expenses in these trying economic times. Equity Express (888) 438-5536