How Alternative Mortgage Loan Repayment Plans Can Help You

How Alternative Mortgage Loan Repayment Plans Can Help You-150x150For a home owner, the largest monthly bill is probably the mortgage bill. Paying off your mortgage will make this large bill go away, which will change your financial situation significantly. You will be able to spend more on other things, save more, travel, or even quit your job and pursue another career.

Alternative mortgage repayment plans can help you shorten your 30-year mortgage loan and get rid of that monthly payment in only 22 to 24 years, but they are not for everyone. The most commonly used mortgage loan repayment plan is the bi-weekly repayment plans.

The Bi-Weekly Mortgage Repayment Plans

This type of mortgage repayment plan takes advantage of the fact that most people are paid by their employee every two weeks, instead of twice a month. So, with this repayment plan, you are required to make a mortgage payment every other week. Because there are 52 weeks in a year, you will make 26 payments per year. If you compare the number of payments that you will make on a bi-weekly plan to the number of payments that you make on a bi-monthly plan, you will find out that you make 2 extra payments, which will reduce your loan repayment term significantly.

Because bi-monthly plans require you to make 24 payments per year, while bi-weekly plans require you to make 26, those extra 2 payments translate into one extra monthly payment per year. Not only will this help you pay off your mortgage loan quicker, but will also help you build home equity faster and pay less in interest rate.

Paying your mortgage bi-weekly is also advantageous because the payments will coincide with your paycheck schedule, but this type of repayment plan normally comes with some pretty expensive costs in fees and various charges. The money that you will be spending on fees could be spent to pay off your mortgage through a regular repayment plan. Another disadvantage is that the bi-weekly repayment plan is inflexible, meaning that, if your pay schedule changes to once or twice per month, this might interfere with your ability to make your mortgage payments on time.

Is the Bi-Weekly Plan a Good Choice?

The bi-weekly mortgage repayment plan is a great choice for those who don’t have the time, patience or discipline to manage their finances. The lender will provide a repayment plan that will coincide with your bi-weekly paycheck, which will make things more convenient for you.

But you should carefully look at the disadvantages, as well. The money spent on fees could be better spent somewhere else. Also make sure you know what your future plans are. If you plan on moving soon, then the extra payment you will make each year is simply not worth it. Make sure that paying off your mortgage doesn’t interfere with other future plans, like sending your children to college, pursuing a different career, or going into early retirement.

Alternatives to Bi-Weekly Repayment Plans

Not every lender offers bi-weekly mortgage repayment plans, but you can take advantage of most of the same benefits that these plans offer for free.

  • Try to simply ask your lender if they can allow you to pay half your monthly mortgage payment every two weeks. Some lenders will allow you to do that, others will charge you for this, while others will refuse.
  • Pay an extra one-twelfth of your mortgage payment every month. This amount should go towards your principal.
  • If you receive your paycheck every two weeks, start a savings account and deposit half of your mortgage payment in it every other week.

Alternative mortgage loan repayment plans are very convenient and a good way to pay off your mortgage loan earlier, but make sure that they suit your budget and future plans. With a little discipline and research, you can benefit from most of the advantages that these plans offer without having to spend more money.

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