Depending on pay schedules or other circumstances, a borrower may prefer to pay his mortgage payment bi-weekly or monthly. Most times when you hear the term ‘bi-monthly’ it is a ‘bi-weekly’ option. However, a true bi-monthly would be where the borrower makes two payments a month, paying half of the monthly payment, for example, on the 1st of the month and the remainder on the 15th of the month. The lender would apply each portion of the monthly payment as it is received to the loan balance. Bi-monthly or bi-weekly payments may also be referred to as accelerated payments.
If a borrower gets paid from his job, bi-monthly, the accelerated payment plan would be a viable option. Also, if a borrower makes half his mortgage payment every two weeks, he could, in effect, save money. For instance, rather than 12 full payments a year, paying half every two weeks would be comparable to 13 full payments a year. This may not sound like much over the course of one year, but in the grand scheme of things, over the course of the life of the loan, the borrower could save a considerable amount.
Take a look at this example:
• Borrower has a $200,000
• Fixed rate at 7%
• 30 year loan
If the borrower has a bi-weekly mortgage payment, he will save a total of $68,925 in interest as opposed to making one payment a month.
Be sure to check with your lender to see what options are available to you. There is quite a difference between payment plans and how the lender treats them. If your lender doesn’t offer the payment plan you wish, you may find an intermediary that will help. Some companies will set this up for you for a fee and will make the monthly payment to your lender after debiting your account every two weeks. Always check with your lender first and see if they offer the option you want in repaying your mortgage.