@tooleman694 wrote:If you get paid every other week, twice a year you will have a month with 3 paychecks. Use the extra checks to pay it down.
The bi-weekly auto-payments debit every other week, and the extra full payment made (the "extra" paychecks) is supposed to reduce your loan faster. I understand the concept, just wonder how much you pay in fees to have a company do this for you 
If you do the bi-weekly payments you will still be making 13 payments in a years time. Your perceived payment is not going up because you are paying 1/2 your regular monthly payment every two weeks. But that means 26 payments or 13 months versus 12 monthly payments. The adding 1/12 of a payment to principal only is the same amount of money each year. As to the difference in total interest payments over the life of the loan between the two methods you will need to find a loan calculator or someone way more skilled in math than me.
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@Anonymous wrote:I should have explained better. The company that solicited doing the biweekly payments for me meant by "biweekly" that you divide your mortgage payment amount in half and that amount gets paid twice per month (I used the term biweekly because of them). In other words, as an example, if your monthly mortgage payment is $500 per month you would make a $250 payment on the first and another on the 15th. If you follow the link that follows it will explain it and it's actually a good idea. Especially if you are doing auto draft (ACH Debit) already because all you have to do is setup another auto draft so that you're making the two $250 payments per month.
Here's the link to a video that explains the concept: http://www.interestminimizer.com/consumer-video.html
Because I used the term, "Biweekly", maybe that's why the mortgage company rep's message didn't make sense. I should have used the term bimonthly (duh).
I'm going to contact the mortgage company again to re-explain what I meant, but I still anticipate they won't be setup for it. So, if anyone has an idea about a workaround I would like to hear it.
Thank you.
Here's my take from an earlier post of mine. It includes some numbers I ran for a 15 year loan and what the additional payments would accomplish.
I checked out the link to the video, and what they are marketing is a biweekly mortgage payment. There would be no acceletated reduction in principal and therefore interest savings to do a bimonthly payment as you were describing.
If you look at the bottom after my copied post, I called to find out about the fees. I did a quick analysis on what it would cost to do the program.
Paying extra fees for a biweekly mortgage is a waste of money
I wouldn't get hung up on biweekly payments, and here's some reasons why:
1. Biweekly payment setups are done more to align your mortgage payment with your paycheck. In your case you stated you get paid twice a month versus every two weeks, so there is no benefit of being able to sychronize your mortgage payment with your paycheck.
2. Even if you were getting paid every two weeks (as I do) it is not a big deal to normalize your budget to just figure out how much of your paycheck needs to be deposited into a budget checking account (the remainder going to a personal account) to make sure that whenever the bills must be paid that there is sufficient money in the account. I get paid every two weeks but my mortgage and most of my other bills are monthly. It's not a problem if you have a basic budget. I think most people on this site probably already do a budget already.
3. While I agree that setting up a 26 payments per year mortgage and paying it at 1/2 of the payment amount of a monthly will save you $$ over the life of the loan, this is because you are paying ahead on principal. However, this is just one way of making extra payments against your principal.
Unless you got suckered into some loan with a pre-payment penalty, you can make extra payments whenever you want.
I ran the numbers for the 15 year loan I am currently re-financing right now. $152,000 for a 15year fixed rate at 2.875%
:
If I set it up for biweekly and paid at 1/2 the monthly amount, my total paid interest for the loan would be $31,676
If I paid the normal monthly amount and added the extra payment divided up by 12 instead of 26, the interest is $31,775
Yup, that is a difference of only $100! And both loans would get paid off in the exact same month (13.5 years into the 15 year loan).
The $100 difference is due to the fact that the very first biweekly payment is made a couple of weeks earlier than the first monthly payment.
Don't limit yourself to paying an arbitrary amount of extra principal
For me, it is much more important to figure out how much extra you can comfortably afford to pay on your mortgage and just pay this along with the normal payment each month. Maybe one extra payment a year is the right number for you, but I think it's much more likely that you could pay more comfortably. And maybe one extra payment a year is too much. Pick what works for you.
I allocate a total of $1500 towards my mortgage and escrow monthly . Currently this equates to an extra $280/month towards principal. My loan will get paid off two years and four months earlier that a "standard" biweekly arrangement. And my total interest will be about $6,500 less than either "1 extra payment" method.
Keep in mind also that the biweekly arrangement is an added hassle for your bank or whomever set up the biweekly. This means that you will be paying additional fees to someone for this service. I am willing to bet that 13.5 years worth of fees is going to more than compensate for that initial $100 savings on the biweekly in my example.
So take the time to set up a proper budget and there is no reason to pay someone extra fees to set up a biweekly.
Any fees you pay for a biweekly would be better spent applied to the principal on your loan!
So I called the company and got the 411 on the fees they will be charging to perform this service for you.
@Anonymous new loan will be $155,000 for a 15 year fixed loan @ 2.875%
To set up the biweekly payments, the initial fee would be $309.25
For each debit they make every two weeks there is a fee of $3.25 Given the reduced number of payments, the total fees for the debits is $1,153.75
The total cost for the program is $1,463.00 Not an inconsequential amount.
On top of that, their program isn't a true biweekly program. They cannot make biweekly payment with loans that are set up to do monthly interest calculations. So guess what?
They have to divide up the extra amount you are paying and apply it monthly the same way you would have to to do it yourself!
So for a comparison, I modeled a schedule that included doing the extra payments myself and put what would have been their fees towards the principal instead and it saved me an additional $400 in interest and paid off the loan another 2 months early.
So do it yourself and save some dough!