Pay Loans Faster to Save Money

Some homeowner use biweekly payments to reduce the cost of a loan without going through the more expensive and time-consuming process of refinancing. If the prospect of saving potentially thousands of dollars on your loan sounds appealing with a little extra work on your part to make all your payments, then a biweekly plan may be a good option for you.

How does this help reduce you interest? Basically all that is at work is that you are repaying you debt faster. Because a biweekly payment consists of half a monthly payment, and because every month consists of four weeks and change, by paying twice a week rather than once a month you are paying a little extra for those couple of extra days. Some simple math can help clarify this expanation.

52/2=26 26/2=13

This equation shows that biweekly payments will be made twenty-six times a year (we divide the number of weeks in a year by the number of weeks between each payment). Bearing in mind that each payment equals half a monthly payment we see, by dividing the twenty-six payments by two to get us the number of payments it takes to equal a monthly payment, paying every two weeks gives us the equivalent of thirteen rather than twelve monthly payments – an extra two biweekly payments that we would not have made had we be paying once a month.

One can either go to one’s broker and ask to have them set up a new payment plan, or the plan can be executed independently from brokers. Generally how the lender setup works is the lender will set up an account into which you will deposit half the monthly mortgage every two weeks. At the end of each month when the mortgage payment would ordinarily be due, the lender will withdraw the payment from the account and leave any accumulated balance which ultimately becomes large enough to count as an additional monthly payment every year.

To do the same each thing yourself but avoiding the fees your lender will charge, just put the biweekly payments into a bank instead of the account that the lender would set up for you. Tell the bank to send you lender your mortgage payment every month. Making biweekly payments yourself gets rid of fees your lender would charge, and allows the money set aside to build interest. It would not do this if left in your lender’s accounts.