You know the offers I'm talking about. They arrive mixed in with your monthly mortgage statement claiming to offer you loads of advantages including generous savings in interest on your loan, blah, blah blah. I've never understood these "offers". Even as a very young homeowner, I would open these and ask myself, "Why would I want to give them my money EARLY and why would I OFFER THEM a contractural agreement binding me to do so?" And here's the kicker: they charge you a fee! Yes! A Fee! They usually call it a processing fee. So they are charging you in the range of $400 so you can commit to giving them your money early! Good deal? Sure is, for them!
What is a biweekly payment plan exactly? The homeowner, every two weeks makes a payment equal to half the monthly payment on their mortgage. Since there are 26 biweekly periods in a year, the biweekly payment produces the equivalent of one extra monthly payment every year.
If you like the idea of shortening the life of your loan (and if you're a commitmentphobe like me) simply make one extra mortgage payment each year. It's the absolute equivilent of a biweekly mortgage plan without the commitment! And the way I like to do it is to take the monthly payment total, divide by 12 and add that amount to extra principal on every monthly payment. Set it up as an automatic monthly payment if you use electronic banking and you won't even notice! This results in a significant shortening of the term. For example, a 7% 30-year loan converted to a biweekly pays off in 287 months - or 23 years, 11 months. The reduction in term is due entirely to the extra payment every year. That's 6+ years off the 30 year mortgage! Good deal? Sure is! FOR YOU!
There are other money-saving ideas! I recently read a great article, "Time to Ditch the 30-year Mortgage?" With rates so low, this might be a good time to consider this alternative. Is it time to ditch your 30 year mortgage? Click here.
So go ahead, convert! But don't commit!