Bi-Monthly Mortgage Payments?

Question

Is it a wise financial decision to pay my mortgage bi-monthly instead of once a month? There is only a $5/mo fee from the mortgage company to make the two withdraws. Any opinions?

Answer 1

It may only be $5 a month, but most mortgage companies charge a fee up front to set it up.  If you've got the cash to make 26 bi-weekly mortgage payments, take the extra two and pay them towards principle or add 1/12 of your mortgage payment to your monthly payment and have them apply it to principle.  Should work just as well to pay it off early.

Answer 2

you could pay a 30 year mortgage in less than 25 years if you do it and do it religiously.  think of the savings in interest for that 5 year period. in many cases, can easily exceed $100k here in teh bay area in california. most people refinance before it gets anywhere close to the 30 year maturity date though.  i've seen people do this, think they'll save money but end up refinancing  within 2 years coz someone convinced them into just a slightly lower rate.  what they don't take into account are the fees they paid on the previous loan and the new fees they will  pay on the new loan. do the math, they likely are spending even more money and are just taking longer to own their home.  

Answer 3

The simple answer is yes, it will save you more than the $5 it costs to set up.

The more complicated answer is that in the long run, it is probably better to pay a little extra each month to shorten up your re-payment period and save thousands in finance charges.  You can do this once a month, avoiding the $5 fee, tacking it on to your regular payment.

Another option is to invest the amount you would dedicate to mortgage pre-payment in a broad market mutual index fund.  Over 30 years, your investment likely will yield savings far in excess of the finance charges you would save by pre-paying the mortgage.  Plus, you have the added benefit of completely liquid access to your money, something you don't have when you pre-pay your mortgage.