How Does The BiWeekly Mortgage Plan Work?

February 16th, 2012 |

Author: yroth

How Does The BiWeekly Mortgage Plan Work?

The biweekly mortgage plan is a great way to prepay your mortgage loan down.

Essentially, what the biweekly mortgage plan does is autodebit – using electronic funds transfer EFT – half of the principal and interest portion of the mortgage loan payment.

There are 26 autodebits made through out the course of the year.

There are 2 months out of the calender year where there are 3 “triple debits”.

So, let’s say that the principal and interest portion of your mortgage loan payment is $1000.

Every other week – or every 14 days - your checking (or savings account) will be debited $500.

Now, when the autodebit takes place, the 50% portion of your mortgage payment isn’t submitted directly to the mortgage lender. Many people, including myself, thought otherwise.

If the 50% portion of the mortgage payment was submitted, the mortgage company would return as “insufficient,” as it’s only 50% of the total mortgage payment due.

What the biweekly mortgage plan does is take the 50% autodebit and put it in an escrow account.

Once the full 100% mortgage loan principal and interest portion has been collected, the mortgage payment is made.

There are 2 months out of the year where your account will be debited a total of $1500 – as the three triple debits amount to $1500 ($500 x 3).

That “extra” $500 is applied directly to mortgage principal reduction.

Given this, what is the biweekly mortgage plan accomplishing?

You see that it’s making a mortgage payment every month, just like you would if you paid it on your own once a month.

The difference is that it’s is collecting 2 additional 50% mortgage payments during the year and applying that directly to principal reduction.

It’s very convenient and works like a forced savings plan.

There’s usually a fee to set up the biweekly mortgage plan.

The set up fees range from $195 to $395.

In addition, there may be an electronic fee transfer charged for each debit.

The EFT ranges from $2.95 to $3.95 per debit.

Can you do what the biweekly mortgage plan does on your own? Absolutely.

If you were to make one extra mortgage payment applied to mortgage principal reduction each year, you would accomplish the same result as the biweekly mortgage plan – which will reduce your mortgage term, lower your mortgage net effective interest rate and save you a ton of money in mortgage loan interest.

The main benefit of the biweekly mortgage plan is that it is automatic. Set it and forget it.

A lot of people will say they will apply the one extra mortgage payment to principal reduction, but they don’t. They end up getting “sidetracked” or forget to.

Although it costs more, you know that with the biweekly mortgage plan, the result is guaranteed.

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