First, for those unfamiliar with bi-weekly mortgages, I want to provide a brief overview. A bi-weekly mortgage is based on making half of your regular monthly payment every two weeks. At first glance, some people may not see any difference between paying every two weeks and just once per month. Due to the irregular number of days in each month, there is an occasional fifth week. As a result, over the course of a year, bi-weekly mortgage arrangements collect the equivalent of thirteen full payments as opposed to just twelve. By making just one extra payment per year, you can cut about nine years off of a thirty year mortgage.
How does it work? There are fifty two weeks in the year and if you divide these into two week increments, you end up with twenty six half payments. Twenty six half payments are the same as thirteen full payments. So, if you boil this concept down to its most simple form, all you are doing is really making one extra full payment per year.
Making an extra payment each year is a good thing, don’t get me wrong. The process of doing so through a bi-weekly arrangement seems a bit tortured and rather expensive. Here is a simpler solution: Take your monthly payment and divide it by 12. For example, your monthly payment is $1,200. If you add $100 each month to your $1,200 monthly payment you will be accomplishing the exact same thing as if you went through the time, trouble, and expense of setting up a bi-weekly mortgage plan. Another option is to simply make one extra full payment on the anniversary date of your mortgage each year.
Advocates of bi-weekly mortgage arrangements believe that people lack the self discipline to do this on their own, I simply don’t believe that. The cost, which is many times hundreds of dollars, seems unreasonable to accomplish such a simple task.
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Helping you make the most of God’s money!