Bi Weekly Mortgage

[y26]

Ok,

I going to refinance my home and want to jump on Bi -weekly payments. I'm having a hard time convicing my girlfreind that it will save on interest paid at the end of the loan. But it is not swaying her. Is there a disadvantage to jumping on a bi-weekly payment??? Would it really be a bad idea?? I'm wondering what i'm missing. I appreciate the input...

 

[GNX Guy]

Might want to have her take Finance 101 again.!!!!!!!!!!!

Yes, you will save $$$$$$$$$$$$ I think you would be shocked at how much would be saved. Better yet shorten the length of the loan too.

Joe

 

[Lee_Burough]

Your loan officer will be happy to print out the payment schedule (whatever they call it) for the monthly and bimonthly comparison.

There IS a difference....mostly because you pay a couple more payments in a year's time and the savings in interest.

 

[1kwick6]

i have done it saves 5-7 years on a 30 year mortgage , same thing as one extra payment per year not to mention all the intrest you save.

 

[jmidolo]

www.bankrate.com >>>Mortgage Calculators....numbers don't lie. I have never heard of having to make the decision to say whether you want a monthly or bi wkly payment schedule when re-fi'in. Usuallly just a monthly payment, the you can decide afterwards to mail it in bi wkly later on...if you can't swing it one month, don't do it. If you can, great. Do it

 

[GN One Day...]

It is good to do it. It's basically making an extra payment a year. If your pay schedule is bi-weekly, it is a great thing. If not, it can suck. Remember, this doesn't mean 2 half payments a month, it means literally every two weeks. Twice a year you'll have 3. It will most likely have to be on auto-draft, so don't forget to subtract it from your account every 2 weeks. To me, it sounds like a checkbook balancing nightmare waiting to happen. I've run people an amortization schedule based on the average per year additional towards principle on the bi-weekly, then divide by 12. Your loan officer can do this. Make payments at the first of the month, keep adding the extra that you came up with towards principle. It does the same thing, but it's easier to keep up with in the checkbook. IF you have the stamina to pay that extra. That's where the auto draft is good on the bi-weekly, you pay it without thinking about it.

For instance, on a $150,000 loan at 5.375% 30 yrs, first payment 9/1/2003:

Regular 360 pymts: payoff 8/1/2033
paid to interest: 152,382.79 (Sucks to see the numbers, doesn't it )

Biweekly: payoff 7/17/2028
paid to interest: 122,665.68

Save about 5 yrs & $29,717.11 (nice)


On regular monthly payments, Prin & Int = 839.96

Avg monthly on bi-weekly is 419.98 (P&I) every 2 weeks, or averaging $909.96/mo (remember two months you'll pay 3)

That's a difference of $70/mo more. If you stay on monthly, but pay the extra $70, you'll do about the same as biweekly:

pay off 9/1/2028, pay in interest 122,992.86
You pay ~$327 more, over the 30 years, but it may be easier to keep up with. You may be able to setup the auto draft for this too, check with your lender. More than likely, you'll close your loan on monthly payments, but have the option to go on biweekly after you've made your first payment or two.

Boils down to what is best for you, based on your pay schedule, more than anything. Either way you do it, it's a great idea--the sooner the better to start saving.

I don't know what term you're looking at, or loan amount, but if you're ok with paying a little more, like on the bi-weekly, have you investigated going to a shorter term instead? This is a great time to do a 20 yr instead of 30, or 10 instead of 15 and so on. If you'll be paying PMI, each shorter term gets a lower rate for the PMI, so it may help lessen the raised payments some.

Good luck, and good job thinking ahead like that.

 

[Buick From Hell]

Coupla years ago GMAC had my mortgage, they sent me a bi-weekly plan. Basically it went something like: half your normal payment every other week, plus a few extra bucks ($15 or $20 was all)...presto, your 30 year mortgage would be paid off in 17 years...

the ONLY problem with a bi-weekly mortgage is 4 months a year you'll have THREE payments instead of TWO...sometimes that can be hard to fit into the budget because of other bills...

 

[Lee_Burough]

There is an easy way to cut your 30 year morgage to 15 years....Just pay an additional 10% of the MORTGAGE portion of your payment each month

To illustrate what I'm saying, here is how you figure it. The mortgage payment is basically divided into principle and interest portions of your monthly payment. Take the monthly PRINCIPLE payment amount and multiply it by 10% and ADD that amount to your payment for the life of the loan. Its that easy.

Pretty soon, you'll be paying down your mortgage enough to save a huge chunk of interest because your payment amount reduces the outstanding balance each month. It starts to snowball until you get it paid off in half the time

If you do it that way, your significant other will understand the importance of financial independance and not be bothered with bimonthly payments. Its a win/win for you.

 

[tom h]

A few years back I read the fine print on Bank of America bi-weekly mortagages, and discovered they would be somewhat cheating you.

The RIGHT way to compute biweekly is to calculate 26 payment periods per year, when plugging into the amortization schedule on your calculator (or use Excel).

In other words, calculate P&I for the period 0-2 weeks, make P&I payment at end of week 2. Adjust balance downwards.

Then calculate P&I for the period 2-4 weeks, make P&I payment at end of week 4. Adjust balance downwards.

Repeat for next 30 years until mortgage paid off

BUT THAT'S NOT WHAT THEY DO !! , When I read the fine print.

They calculate P&I based on 13 payment periods per year (not 26), and just cut your biweekly P&I in half.

Big difference, in bank's favor, over 30 years (what a surprise).
And on top of that, BofA wanted to charge me a monstrous $400-500 fee for this!

You can achieve the same net result if you are disciplined to make an extra principal payment every month. Even 10% extra principal every month makes a big savings, plus if you have a really tight month, you could skip the extra payment.

Better yet, get a 15 yr mortgage if you can afford the larger payment.

Interest RATE is less on a 15 yr, plus you save HUGE amounts when amortized 15 yrs (180 pay periods) vs 30 yrs (360 pay periods).

 

[Weazel]

I agree with Tom H, there was some shady fine print when my mortgage company was trying to get me to sign onto the bi-weekly bit. They wanted to charge an up-front fee for the "service" (a few hundred bucks! Which I thought was BS) and to charge a couple bucks "convenience fee" per payment. Basically you can do the same thing yourself if you're disciplined and avoid all the fees. I can just pay extra every month to the principal if I want. I'd imagine anybody can. But the way the rates are, and the fact that mortgage interest is tax deductible, the only way I'd pay more than necessary on the mortgage would be if ALL other loans were gone and I had maxed my Roth IRA and 401k. Even then I'd be tempted to try investing money in other ways as opposed to paying a mortgage down more quickly.

 

[GN One Day...]

You're only making 13 payments, I seriously doubt they're trying to cheat you. They're trying to get money in faster so they can use it, and make a little on the side from the fee.

You're making 26 installments, but your actual monthly payment amount is the same. That can't change without reclosing the loan. You're still making the same note per month, but slowely getting ahead in your payment schedule. They're just allowing you to break it up into a way that may help you due to your work pay schedule, and saving money in the long run is the bait. For them, this gets people on auto draft, which lowers delinquency and brings money in faster to be useful again. If 20% of their borrowers do this, making an extra payment a year, it helps them to keep the loans longer before selling it off, or keep it indefinitely, since they'll have more useable funds coming in.

Still, if it doesn't work for you, do like I calculated above and just do it yourself. Personally, I think that is preferable, and there's no fee for that.

 

[Lee_Burough]

Invest in your future....

There are few things you can invest in that will give the return on YOUR OWN MONEY that paying 10% more on your principle each month will. It will put you $100,000 ahead on a modest sized home loan. No "ifs," "ands," or "buts." Its a sure thing. Nothing else you can invest in will bring the return on your money that this strategy will.

I did it. I was able to retire (yes 100% retire) on a modest income at age 49. Those who would carry more debt and invest elsewhere on long odds will not retire until almost 70....(no flames intended here.) Its a conservative strategy not popular today. Having a home paid off is a HUGE, HUGE solace in the rat race of a topsy turvy world

Read Suzy Ormand's book about finances, you'll be glad you did

 

[strikeeagle]

1. The ONLY difference among mortgages is INTEREST RATE.

2. Bi-weekly interest rates are generally about the same as 30 year rates.

3. You can achieve the same results as a bi-weekly mortage by making an extra payment on your 30 year mortage every year, but not be OBLIGATED to make said payment if times get tough.

4. If you itemize on your tax return your cumulative interest savings are about 1/3 less after tax.

5. When a bank tells you something is a good deal, DOUBT IT. Banks make their money by manipulating every possible aspect of your mortgage.

6. I hate to tell you about money, but it's been around for a long time and the bean counters have EVERYTHING figured in their favor 9 ways to Sunday...

 

[Little6pack]

WHY not take a shorter duration like 15 or 20 years?
You can always send in 1 extra principal only payment every year that should cut it down even more.

 

[y26]

Thanks for all the responces... She read all the post with me and were gonna sit down and talk this out, We are going down from a 30 to a 20 so that is always good. Again thanks for all the input..

 

[Weazel]

Originally posted by y26
We are going down from a 30 to a 20 so that is always good. Again thanks for all the input..

GOOD decision. That'll get you WAY more equity much faster, and probably get you a better rate to boot. Definitely better than a 30 yr, even if you were to pay extra on it. My 20-year also got me out of PMI with only a 10% down payment (instead of the normal 20).