Should i try a bi-weekly mortage? I heard they were great way to pay down my mortgage.
From: Mark L.
Only if it costs you nothing to set up or carry out. With a bi-weekly, you make mortgage payments every two weeks instead of once a month, which adds up to an extra month's payment every year. Doing it consistently from when you first buy the house translates to a 30-year mortgage being paid off in 21 years. You also end up paying a lot less in interest charges because you've returned the bank's money sooner than expected.
But hardly anyone stays in the same house for 10 years anymore, let alone 21 or 30. In today's world, biweekly mortgages work more like forced savings. Think of your house as a piggy bank with you putting the equivalent of an extra mortgage payment into it each year.
You can achieve the same result as a biweekly mortgage simply by paying a little extra with your mortgage payment each month. Use this simple calculation: Take one month's mortgage payment and divide by 12. Then add that number to your monthly mortgage payment each month. (For example, if your mortgage payment is $1,000, divide that by 12, which gives you $83.33. Every month, tack on an extra $83.33 to your mortgage payment.) At the end of the year, you’ll have paid down the principal by the equivalent of one month’s mortgage payment, which is the same result as having a biweekly mortgage. Just make sure to write on your monthly statement that the extra payments should go toward principal.
If you don't have the discipline to make the extra payment yourself, a biweekly mortgage plan is worth it. But be wary of unscrupulous operators who suggest you have to refinance or pay fat administrative charges and setup fees for the service. It shouldn’t cost anything.