Bi-Monthly Mortgage Payments Question
By Ric EdelmanQuestion: There are a lot of folks who get paid twice a month — the middle of the month and at the end of the month. Is there any advantage to sending in half of your mortgage payment in the middle of the month so it gets credited to your account earlier, alternately reducing your interest cost, and then sending in the other half at the end of the month? Would banks even allow that?
Ric: Paying half your mortgage bill twice a month might have some small benefit, but probably not enough to make it worthwhile. What you’re describing is a cousin to a more formal program known as a biweekly mortgage plan. (With that plan, you pay your mortgage every two weeks. Because there are 52 weeks in a year, you end up sending in a payment 26 times per year, thus making 13 payments instead of 12. That works to reduce the length of the mortgage because you’re making an extra full payment per year — a practice I don’t typically recommend.)
But that’s not what you’re talking about doing. What you’re doing would have a minimum impact on your payment schedule, because you’re only saving half of a few weeks’ worth of interest, and you could end up with administrative headaches that outweigh the perceived benefits. For instance, you would incur the risk that the bank might not credit your payment to the proper loan month.
If you want to pursue the idea, talk first with your lender to see how it would handle a partial payment. Some lenders might credit the entire check to the outstanding balance, meaning they will still expect you to make this month’s payment in full. Don’t make any assumptions when dealing with lenders — get the information, and get it in writing before you proceed.
From February 2010 Insider Personal Finance.