Don't Pay For Biweekly Mortgages
Matt wonders what Dave thinks about a bimonthly mortgage program from his mortgage company. Dave says as long as there isn’t a fee associated with it, he thinks it’s just fine.
QUESTION: Matt on Twitter wonders what Dave thinks about a bimonthly mortgage program from his mortgage company. Dave says as long as there isn’t a fee associated with it, he thinks it’s just fine.
ANSWER: If they don’t charge you for it—if there’s no fee associated with doing it—I’m fine with it because you’re paying extra on your principal.
Now, let’s explain what it is and why I wouldn’t pay for it. Most of the time, your mortgage company or someone else will send you a thingy in the mail that says for $495 or $395, we will sign you up for a biweekly mortgage plan, and we’ll charge you $10 a month as a service fee, too. A biweekly mortgage will pay off a 30-year mortgage in about 22 years, give or take. Why wouldn’t I pay to get rid of my mortgage eight years early?
Let’s understand what a biweekly mortgage is, and then you figure out why you don’t need to pay for it. If you want to set it up and they do it for free, I would say yes. You pay half of a mortgage payment biweekly—every two weeks. There are 52 weeks in a year, 26 two-week periods in a year. Twenty-six half mortgage payments equals 13 whole mortgage payments. Why does your mortgage pay off early? Because you’re paying an extra payment a year. There’s no magic to the fact that it’s every two weeks.
You don’t have to pay a $300 service fee to make an extra payment a year. Just write the bank an extra check once a year. That will pay your house off in about 22 years instead of 30.