How do I know if a lender will allow me to do a bi-monthly mortgage payment?
I am paid bi-monthly. I want to refinance a 1st and 2nd mortgage. While shopping how can I make sure the payments will be split, even if the mortgage is taken over by another lender?
If you are just shopping around (looking for the lender that offers the lowest and best interest rate, term, and fees) there is no way to guarantee the payments will be split. The way to see if your payments will be split is by reading the loan documents that you receive prior to signing and closing the loan. The loan documents come after you have submitted a loan application to the lender, and have completed all the necessary conditions that a lender requests after you have been approved for a loan. Below I will briefly discuss "bi-weekly mortgage" and "bi-monthly mortgage".
To my understanding, there is really no such thing as a "bi-weekly mortgage", meaning a mortgage that actually calculates your interest and payments on a bi-weekly basis. Rather, the bi-weekly mortgage companies that promote this type of mortgage repayment plan are actually intermediaries between you and your mortgage company. Rather than making a single payment to your mortgage company each month, these companies allow you to split your mortgage payment, making a half payment every two weeks, while the company holds your funds and makes a regular mortgage payment every month.
Since paying every two weeks means that you are paying more money annually than if you paid once every month (and with the effect of compounding, it rapidly cuts down the principal and consequently the interest and total cost of the mortgage loan), you should build enough money to make one additional mortgage payment per year. Many times, a bi-weekly mortgage payment holds your additional funds throughout the year until it has enough money to make an additional half or full payment to your mortgage company. Generally, these additional payments are paid to your mortgage lender either once annually or once every six months.
As you seem to realize, the fact that these companies hold your additional payments for at least six months means you are not actually paying down your mortgage every two weeks, so the benefit of these programs are much less than if the additional funds were paid to your mortgage company every month.
To my knowledge, there are no bi-weekly mortgage companies that pay the additional funds to the lender on a monthly basis. However, your lender may allow you to pay more than your regular mortgage payment each month, which should benefit you much more than enrolling in a bi-weekly mortgage program. If you make an additional payment each month, be sure that you mark it as "principal reduction" so that your lender credits your loan properly. You should contact your lender to discuss the impact of paying more than your regular monthly payment, and if your loan includes any pre-payment penalties for paying off your mortgage before the full term of the mortgage has expired. Making an interest reduction payment each month on your own than rather than an annual or bi-annual extra payment, you should pay off your mortgage a few months faster than with a bi-monthly mortgage program.
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