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ShaneMcKenna

Biweekly mortgage vs Monthly mortgage

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Hey I am Shane I am kind of new to real estate and mortgage information. I was presented the idea of the biweekly mortgage last night and it makes sense. But am I thinking too much into it. I've always known that there's 4.3 weeks in a month and I know that if you do the basic 12 months times 4 weeks, you come up 4 weeks short of 52 in a year.

My questions are, what is the difference with a biweekly mortgage and a monthly mortgage and just overpaying. (You can do the same by taking your monthly mortgage and dividing that by 12) Send that in with your initial payment each month, and you should be set like biweekly... Once concern is if you overpay on a monthly mortgage, does that money go towards the interest that you typically pay for the first few years, or principle where you want it? With the Biweekly I was told more of your payments go to principle. Either way you would pay off your mortgage years sooner and save thousands. But that is a given if you overpay. Can I get more information on a Biweekly mortgage?

Thanks, Shane McKenna

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Hi, Shane, and welcome to The Naked Investor.

I'm moving your post to our Financing Strategies Forum, where I think you'll reach the folks with the knowledge to answer your questions.

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Hi Shane,

 

Your question is a very good one!

 

If you want to save thousands of dollars over the life of the loan, then a biweekly is the way to go! Your whole loan amount is recalculated (reamortized) every two weeks so that in essence, you are not paying interest on interest.

Does any of this make sense? By all means, take the bi-weekly! Your monthly payments are split in two and while it might seem like a hassle, it can save you a small fortune over time.

Hope this helps.

 

Andrew Ikeda (Mortgage/Investment Specialist)

US Funding Group, Inc.

888-889-1640 ext 220

360-433-6820 direct line

360-909-3374 mobile

 

andrew.ikeda@usfundinggrp.com and/or

andikeda@netscape.net

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thanks for the reply. what is the difference with setting up the biweekly mortgage and just making an extra payment once a year? (or taking your mortgage and dividing it by 12 and sending that in anlong with your monthly mortgage) You will come to the same end result correct?

Thanks again for the info. I just wonder why some places charge $500 for the service. I have not yet got into a mortgage, but I will be within 6 months or so. Can I request a biweekly mortgage right off the bat and not be charged a start up fee? If there is a start up fee, I'd rather just do it myself and dicipline myself to overpay. Thanks again, Shane

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Hi Shane,

 

Not doing the bi-weekly is going to cost more over time compared with the monthly payments regardless of how you divide the payments. With a bi-weekly, you are going to make an extra payment or two per year which will be applied to principle reduction.

 

There is one lender that I know of with a 'true' bi-weekly and they charge $150 for the set up as part of the closing costs. Then you are done and there are no more fees or charges thereafter.

 

There are two companies that offer a program where they will set you up with bi-weekly payments. I dont believe that they charge $500 for the set up but if they do, just remember that it's a one time charge...at least that's how I understand it.

When I get the contact info on these guys, I will post it here so stay tuned.

 

Andrew

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the one company I first heard of that did it was Equitycorp. they charge $595 to get you switched over and $2.50 every time a payment is made for a transaction fee. I am wondering what is the difference with going that way, and just doing it yourself? Other than they are diciplineing you every time to make the payment?

 

Also, can I set up the mortgage to be biweekly from the get go. I am going to get getting into a mortgage 6 monhts - a year from now. Can I request a biweekly mortgage over the standard monthly one? Thanks, Shane

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Shane your question:

 

the one company I first heard of that did it was Equitycorp. they charge $595 to get you switched over and $2.50 every time a payment is made for a transaction fee. I am wondering what is the difference with going that way, and just doing it yourself?

Shane I have in the past felt that paying someone $500 to $600 for me to pay biweekly seemed crazy when I could simply make an extra payment every year. Basically that's what your doing. However, I've realized that what Andrew mentioned is:

Your whole loan amount is recalculated (reamortized) every two weeks so that in essence, you are not paying interest on interest.

That's additional saving and it seems worth it.

 

Shane you might want to check with your existing lender to see if they offer this program already. It might be cheaper. However, if you want to refi your loan and go to a bi-weekly you might want to check with Andrew, he's got a lot cool stuff in his lender's bag of loan products.

 

No charge for the plug Andrew. :unsure:

 

<Steve>

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Hi again Shane,

 

Ok, there is no need to pay the $595 to Equitycorp or anyone. I dont forsee making the extra payment once a year to make up for it as long as it does not interfere with a/the prepayment penalty. But if you have lets say...a 2 year prepay penalty, then you might as well do the monthly payment thing until you are able to refinance.

 

If you already have a loan in place, then I would check and see what the prepayment penalty is. When it is over, refinance into a program with bi-weekly payments. As Steve mentioned, we work with a lender who does this. They charge a one time fee of $150 as part of their closing costs! There are no extra $2.50 or whatever fees, and the lender gives you the option to do monthly or bi-weekly. In addition, you have four monthly payment choices: minimum payment, interest only, principle and interest, or a 15 year fixed equivalent.

 

If you dont have a loan in place, I can assist you with the lender mentioned above or help you find a lender that does. The lender I work with is zip code driven and they are not keen on rural properties (must be within city limits) and for owner occupied purchase, they will do 95% LTV for non-owner 70%. For refinance, they will go to 75% for both owner and non owner rate and term and 70% for cash out.

 

Steve, thank you for the plug at no charge! :unsure:

 

Andrew

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Thank you both for the reply. I do not have a mortgage yet. I am just getting info onthe basics of a mortgage and info on the biweekly mortgage. I'd like to have my own house in about 6 months or so. Maybe a year. Now I am just trying to save some money aside and get info on real estate.

Like I said I dont have a mortgage currently. When I go to apply for one, can I set it up from the begining to be biweekly? If I do it that way, will I still be on a 30 year fixed or what would it be if in reality biweekly takes years off your loan...

Any more info on biweekly mortgages or just general real estate info I should know, I'd really appreciate it. Thank you again for your help.

Shane

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Hi Shane,

 

This bi weekly program is calculated on a 30 year basis but because you are doing bi -weekly, you will be able to pay it off in just under 24 years making the minimum payments! Figure a whole lot less time if you could muster a principle and interest payment every month for the life of the loan...then it's under 20 years! On a $300,000 loan amount, the savings are over $70,000+ (cant recall the exact numbers at this moment).

 

A downpayment of 5% is required for owner occupied properties so I'm glad to hear you are saving up. To make your life easier, dont forget to save for the closing costs also (I generally use 5% as a rule. It's steep but I'd rather overestimate than underestimate)

 

Take care and Happy Easter.

 

Andrew

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There is one lender that I know of with a 'true' bi-weekly and they charge $150 for the set up as part of the closing costs. Then you are done and there are no more fees or charges thereafter.   

Andrew

What is that lenders name who offers biweekly payments as an option?

thanks again Shane

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ShaneMcKenna,

 

Here's an internet page that will allow you to calculate the results of the different payoff scenarios. It will generate a report showing you how much you will save over the term of the various options providing both years and dollars. Give it a try---I hope this helps you make an informed decision.

 

HSH Mortgage Calculator

 

option8

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Shane,

 

Biweekly mortgage payment plans that charge a setup fee and a monthly processing fee are just revenue streams for the lender (loan servicer).

 

Sometimes the loan servicer will escrow your biweekly payments and just make the regular monthly payment until the end of the year when your escrow is equal to a full monthly payment. You do not really realize any benefit of monthly principal reduction if this is the way your plan is administered.

 

Instead, just divide your monthly principal and interest payment by 12. Add this amount to your regular payment each month as additional principal. For a $100K mortgage loan at 6%, you will add about $50 each month to your regular monthly mortgage payment. Write this amount on your coupon in the space provided. If you wish, contact your loan servicer to set up an automatic payment plan and ask that an additional $50 be drafted from your bank account each month for principal reduction. You may just need to write a letter to the loan servicer to get the wheels rolling.

 

Each month, your loan interest is computed on the actual amount of principal remaining on your loan balance. Each month, your loan balance goes down $50 faster (in my example) -- less interest paid each month -- so more of your monthly payment is applied to your loan balance each month. Your loan servicer will do this for you at no extra charge for setup or processing.

 

I have no idea what Andrew was talking about when he mentioned paying interest on interest. No matter whether you use the traditional 360 payment 30-year amortization, or the biweekly, you are not ever paying interest on interest. You do reduce the total interest paid over the life of the loan whether you enroll in the biweekly plan, or just include an extra payment toward your loan balance each month.

 

By the way, if you follow my example of the $100K loan at 6%, just adding $50 to each monthly payment for extra principal reduces your loan term from 360 payments to 294.5 payments. Add $100 instead, and your loan is paid off after 251.5 payments.

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if you follow my example of the $100K loan at 6%, just adding $50 to each monthly payment for extra principal reduces your loan term from 360 payments to 294.5 payments.  Add $100 instead, and your loan is paid off after 251.5 payments.

That is what my dad has been telling me to do and what he does. He sends in an extra $200 each month and that goes towards principal. That's what I'll do when I get into my mortgage. Right now I am still shopping around, getting as much info as I can, and waiting for the right time. Thank you all for all of your help.

:) Shane

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Hello Shane,

 

I admire your determination to learn all you can about financing and you have recieved excellent information here in this forum. Now it is time for you to realize that paying down your debt is a good thing and the small extra payments that Dave T explained or doing the bi-weekly makes sense.

 

It's not much different than credit card payments. If you pay it all off at once you save a ton on interest, however, since we obviously cant do that, making extra payments on top of your monthly payment or bi-weekly payment is the way to go. You can also do a 30 year loan and do the extra payment thing too but interest only and ARM's may keep your payments down initially (if paying the extra $2/month for the biweekly is uncomfortable) . In this case you could add more to the payment and reduce your balance and hence your interest paid over time.

 

Your on the right track buddy and one step closer to doing it!

 

Best wishes,

 

Andrew

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