Bi-weekly Mortgage Plan : Does it really work?

Making that extra cash work for you is definitely key in your efforts to pay off your mortgage early. Do you need a third party to help pay off your mortgage early?  Nope.

The majority of mortgage lenders now offer a biweekly mortgage payment plan (BMPP) that allows you to pay in installments every two weeks instead of the traditional mortgage payment due every month. By paying biweekly, the idea is that you reduce the balance on your loan faster. This is built on the theory that through this method, you build equity faster, pay less interest over time and pay off your mortgage ahead of schedule.

Mortgage planSigning up for a biweekly payment plan definitely sounds appealing but before you do that, it’s important to understand the drawbacks and consider the possibility and feasibility of doing this method on your own. So, you might be asking the following questions and were happy to answer!

Should I enter into a lender-sponsored BMPP?

Unfortunately, not everything works as well as they claim. What actually happens when you send in your biweekly payment to the company you signed up with is that they hold your payment until your second payment for the month arrives and then they apply the full monthly amount to your mortgage.

That means, you’re still making ONE PAYMENT PER MONTH. Obviously, this does not save you anything. What’s worse is, some BMMPs can actually end up costing you more money, because the companies that offer these plans often charge additional fees to handle and deliver the payments for you.

Why do these payment plans exist if they can’t help me pay off my mortgage early?

Well, most lenders who offer the plans don’t actually service those plans. A third-party handles the processing and payment. That being said, nothing is stopping you from making your own plan to pay down your mortgage loan ahead of schedule. A lender-originated plan is definitely not a necessity.

How can I pay off my mortgage early on my own?

You can simply make extra payments at any time, and you can do so in a variety of ways. Just be sure that any extra payments you make are applied to the principal of your loan, not just the interest. One way is by adding a little more to each monthly payment you make. If you know you have an extra $100 in your budget each month, tack that on to your payment. For example, on a $100,000 loan (assume a 30-year fixed mortgage and 4% interest), paying an extra $100 a month can cut approximately 8.5 years off the life of the loan — and save $22,463.76 in interest. That’s some serious cash.  

Another way is to create your own biweekly payment plan. You’ll end up making an extra payment each year that you wouldn’t make if you paid monthly. You can also continue to pay monthly but make one extra mortgage payment at some point during the year to get the same result. Anytime you have extra money on hand — from a tax return, bonus from work, or gift — you can apply these funds to your mortgage too.


Finally, before you make any extra payments on the road to paying your mortgage off early, You’ll want to ensure that the terms of your mortgage will not leave you with a prepayment penalty should you pay extra or early.


What did you do to pay off your mortgage early? Share it in the comments!
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