Bi-Weekly Payment Plan

Bi-Weekly Payment Plan - Accelerated bi-weekly payment options are calculated by taking a monthly payment schedule and assuming there are only four weeks in a month. You can calculate an accelerated bi-weekly payment, for example, by taking your normal monthly payment and dividing it by two. Since you would pay 26 bi-weekly payments, by the end of a year you would have paid the equivalent of one extra monthly payment. This additional amount accelerates your loan payoff by going directly against your loans principal. The effect can save you thousands of dollars in interest and take years off of your mortgage.

Bi-Weekly payments can also be utilized to off-set the negative amortization (Neg Am) that occurs on some types of loans such as pay option ARMs. In these types of loans there is a minimum payment that does not cover the total interest for the month, the difference between the minimum payment and an interest only payment is added to the balance of the loan. The bi-weekly option essentially makes an extra monthly payment for the year, the extra payment and the smaller Neg Am amounts minimize he overall all effect of making minimum payments.