Bi-Weekly Payment
Plan - Accelerated bi-weekly payment options are calculated by taking
a monthly payment schedule and assuming there are only four weeks
in a month. You can calculate an accelerated bi-weekly payment, for
example, by taking your normal monthly payment and dividing it by
two. Since you would pay 26 bi-weekly payments, by the end of a year
you would have paid the equivalent of one extra monthly payment. This
additional amount accelerates your loan payoff by going directly against
your loans principal. The effect can save you thousands of dollars
in interest and take years off of your mortgage.
For greater savings than you can get from a pseudo bi-weekly, all
you have to do is divide your current monthly mortgage payment by
twelve, and send in that amount as a pre-payment with each month's
check.
Third parties often contact mortgage holders and offer to set up
a bi weekly payment plan for a nonminal fee.
Such a fee is,in most cases, quite unnecessay as many mortgage servicers
will set up the plan for free or the borrower can simply set up
their own schedule and send in bi-weekly payments.
Bi-Weekly Payment Plans offered by third parties are unnecessary
because borrowers can do the same thing themselves by paying an
extra 1/12th of a payment each month.
Another way to acheive the same result is to pay one extra payment
once each year.
Bi-Weekly payments can also be utilized to off-set the negative
amortization (Neg Am) that occurs on some types of loans such as
pay option ARMs. In these types of loans there is a minimum payment
that does not cover the total interest for the month, the difference
between the minimum payment and an interest only payment is added
to the balance of the loan. The bi-weekly option essentially makes
an extra monthly payment for the year, the extra payment and the
smaller Neg Am amounts minimize he overall all effect of making
minimum payments.
