As I understand it, the biweekly payment plan is basically a good habit for the debtor to get into to pay off the loan as quickly as possible.
So while, yes, there may be more optimum ways of accomplishing the same goal, in fact the costs of the biweekly plan over making 13 “monthly” payments a year are so negligible it makes sense for most people to just follow the biweekly plan, especially given that a lot of people will fall off the wagon and not make that 13th payment.
You are absolutely correct. If someone is going to “fall of the wagon” then they should set up something automatic. I’m a fan of setting up the automatic debit at 1/12th higher than the payment and then you don’t have to worry about the extra payment.
The bi-weekly is better than taking 30 years to pay it off, but if someone can avoid some bank fees AND pay their house off early, I’m all for it.
I like your simple analysis of questions I even get quite often. It’s a no brianer to do the 1/12 option and if you can afford to make an additional full payment per year. I would think that would help all around.
What if you did bi-weekly if they offered no charges for that service and added 1/12 and made one full payment a year.
Sounds like that could be a good option for people who are looking to accelerate paying of their mortgage.
Damon Chetson says:
As I understand it, the biweekly payment plan is basically a good habit for the debtor to get into to pay off the loan as quickly as possible.
So while, yes, there may be more optimum ways of accomplishing the same goal, in fact the costs of the biweekly plan over making 13 “monthly” payments a year are so negligible it makes sense for most people to just follow the biweekly plan, especially given that a lot of people will fall off the wagon and not make that 13th payment.
October 17, 2009 — 9:43 am
Tom Vanderwell says:
Damon,
You are absolutely correct. If someone is going to “fall of the wagon” then they should set up something automatic. I’m a fan of setting up the automatic debit at 1/12th higher than the payment and then you don’t have to worry about the extra payment.
The bi-weekly is better than taking 30 years to pay it off, but if someone can avoid some bank fees AND pay their house off early, I’m all for it.
Tom
October 17, 2009 — 10:37 am
Allison Ables says:
I don’t like the idea of a bi-weekly payment either. It’s just another chance for the bank to make money on late fees.
October 18, 2009 — 7:49 pm
Greg Dallaire says:
Tom,
I like your simple analysis of questions I even get quite often. It’s a no brianer to do the 1/12 option and if you can afford to make an additional full payment per year. I would think that would help all around.
What if you did bi-weekly if they offered no charges for that service and added 1/12 and made one full payment a year.
Sounds like that could be a good option for people who are looking to accelerate paying of their mortgage.
October 18, 2009 — 7:57 pm