Bi Weekly Mortgage Payment Program

My husband and I bought our lake home five years ago. At the time we purchased it the interest rates were about eight percent and so we took out a thirty year loan. Shortly after we moved in the interest rates dropped to less than five percent on fifteen year mortgages. We decided to refinance so that we could get the house paid off by time we retired. When we went through the refinancing process our loan officer suggested that we consider a bi weekly mortgage payment. He told us that this would allow us to pay off the fifteen year mortgage in about twelve years. My husband was skeptical so we decided that we would research this before committing to this type of payment plan. The loan officer explained that our mortgage would be sold to a mortgage company anyway so we could ask for details once we knew which company would be taking over our mortgage. 

We did some research on bi weekly mortgage payment programs. The plan works by having you pay your first full loan payment for your home. You then pay half of a payment on the fifteenth of the month and another half two weeks later. After the first month you pay half the mortgage payment every two weeks, that is why it is called a bi weekly mortgage payment. This process means that the first month you need to make two payments, but after that you are making half payments two times a month. You are always ahead a half a payment this way so you are paying off the interest faster and more on the principal of the loan, that is what accelerates the home loan. With the bi weekly mortgage payment each check is smaller, so it is not such a large amount due at the beginning of each month. All the payout plans that we looked at showed that we would be cutting off three years of mortgage payments and thousands of dollars in interest.

We talked with a financial advisor regarding the bi weekly mortgage payment. He said that this is a good sound concept. He said that you can accomplish the same thing by making an extra house payment each year. He said that this would also accelerate paying off the home loan. By making an extra payment a year and directing the mortgage company to take that amount off the principal you are also reducing the length of the loan. He told us many people choose to go with the bi weekly mortgage payment so they do not have to remember to pay the extra payment, nor do they have to figure out when the extra payment is most beneficial. We decided to go with the bi weekly mortgage payment. It seems that our principal is going down more quickly and our payments are smaller.