Many clients of mine inquire about bi weekly payments. Bi weekly payments are just as they sound, you make a payment every two weeks instead of once a month. By doing this you will pay your loan off faster and you can line your payments up with your pay checks. By paying every 2 weeks instead of once a month you are making 26 payments a year. This is the same as making 13 payments a year instead of 12. Most mortgage servicers allow you to do this if you request it. Once you have made your first monthly payment or your loan has been sold to your new servicer you can call customer support and set up biweekly payments. Most of them will require that you do automatic withdrawals or ach payments as well. This makes the most sense to make sure you don’t forget to make a payment and all your payments are on time. An example of how much money you can save by making biweekly payments would go something like this. I’ll use a $200,000 mortgage at an interest rate of 4.75%.
The Monthly payment would be $1043.29 Principle and Interest. The total interest paid would be $175,586.08 assuming you make your minimum payment every month. If you do bi weekly payment’s you would pay $521.65 every 2 weeks and your total interest would be $143,407.66 making the same assumptions. You can see here that you can save over $32,000.00 using biweekly payments. That could be the cost of one of your cars during the next 30 years. In addition to the interest savings you will also pay your loan off in about 25 years instead of 30. I always recommend trying to do a shorter term loan to my clients. Doing a 15 year loan instead of a 30 could save you the cost of college.
Now there is one other way to do this without making bi weekly payments and that’s just that you make an additional payment every year preferably at the beginning this will effectively do the same thing. Any additional interest payments especially at the beginning of the loan term save you money big time. Just by paying an extra principle amount of $100.00 on onkly your first payment will save you $313 over your term so you could see how that can add up over time!