Monthly payments made bi-weekly/weekly?

iVillage Member
Registered: 04-16-2004
Monthly payments made bi-weekly/weekly?
6
Tue, 10-19-2004 - 2:32pm
A friend recently told me that you can seriously reduce the length of your mortgage by simply dividing the monthly payment into a biweekly payment. She said she read somewhere that by paying the same amount for the month but in two separate payments (of course the first payment would be two weeks prior to the due date) on a 30-year mortgage will mean that you will pay the loan off seven years early. Is there any truth to this? The idea she said behind it was that since the bank receives a portion of the money early, it affects your interest and more goes toward the principal faster....which kinda makes sense to me. And, if there is truth to this, wouldn't this also work for personal loans, credit cards, etc.?

I actually started making weekly payments to my three credit card companies and also to the bank for a personal loan and auto loan.....I had done this before I had heard this about biweekly mortgage payments because I am finding it easier to budget if I take out a weekly portion of each payment and pay each pay day (I get paid every Friday).

Any thoughts or ideas which would be greatly appreciated! I have an enormous amount of debt that I'm trying to pay off as quickly and efficiently as possible...

TIA!

iVillage Member
Registered: 02-19-2004
Tue, 10-19-2004 - 2:54pm
If your credit card interest is calculated based on the 'average' balance, then paying some portion earlier will help.

And it just goes to show you that my ex was lying when he said he didn't have enough for the mortgage payment but had paid 1/2, and because it wasn't the full payment they rejected it and sent his check back, causing the mortgage to be even more behind. He had hidden the delinquency from me because he was embarrased, and I only found out when I checked my credit after a job interview had gone well, because I knew that was the next step for them... and found we had been 90 days delinquent TWICE in the past year (this was almost 2 years ago). Had he told me we could have taken a 401(k) loan and made the payment. Instead he let us go deliqnuent and damage both our credit ratings. We're divorced now (this was not the only reason).

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iVillage Member
Registered: 07-23-2004
Tue, 10-19-2004 - 3:01pm
I could be wrong, but I believe the idea behind saving alot in interest on your mortgage by making a payment every 2 weeks is because at the end of each year, you will have actually made 2 extra mortgage payments, as opposed to paying one payment every month. You would have to check with your mortgage company as to how they handle this though, some companies charge extra to send in the payment any other way then once a month.
~Dawn
edited to correct: that would be 1 extra mortgage payment at years end, not 2...sorry


Edited 10/20/2004 8:14 pm ET ET by shiningonme

 

iVillage Member
Registered: 10-06-2004
Tue, 10-19-2004 - 5:47pm
Wells Fargo has a program (and it can be used with other mortgage companies) where they automatically deduct 1/2 a payment at the beginning of the month -- plus 1/24th of a payment. Then they automatically deduct the second half on the 15th of the month, plus 1/24th of a payment. At the end of the year, you end up making an extra payment. Its called the equity enhancement program. It was calculated for us that over the course of the mortgage, we will save over $72,000 in interest. I love the program.
iVillage Member
Registered: 04-27-2004
Tue, 10-19-2004 - 8:04pm
When I purchased my home last year I was told by my loan processer that after one year my mortgage would be resold to a bank that offers bi-monthly payments. My year is up in a month so I'm anxious to see if it will really happen, I think it would be great!
iVillage Member
Registered: 07-26-2004
Wed, 10-20-2004 - 11:13am

Yes - it can save you some money.

 

 

iVillage Member
Registered: 05-19-2004
Wed, 10-20-2004 - 1:31pm
The post right before mine is exactly right. (cmyvetteb) Don't let those companies take your money when you can do this yourself!! You will pay one extra payment per year if you do it biweekly. Another easy way to do it works if you or DH gets paid biweekly. You know that extra pay that comes twice a year? You can send in 1/2 of your mortgage payment with each of those extra pays. Making that equal one extra payment per year- seems a little easier to me than sending biweekly. Just be sure to write "apply to principle" on a note with your check when you send it in! Good luck! Nicki