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Are bi-monthly payments really better?

Are bi-monthly payments really better? This is the first time I have heard of them. They say they reduce your loan by 4 or 5 years. Doe they also reduce total cost of the loan, or are you just giving away your money faster? What is behind these?
  • February 20 2013 - Tampa
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Answers (6)

Bi-Monthly payments = 2 half payments per month so you are not paying any extra principal by doing that. That is very different from Bi-Weekly payments.
  • March 05 2013
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Yes, if you are not a good saver.  As someone else said, it's the same as making an extra payment per year.  If you can save and just do that on your own, then there's really no need to do a bi-monthly payment. 
  • March 05 2013
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I agree with watching the set up fee.   Generally, you can contribute extra principal payments monthly without additional service fees.  It depends on 
how structured you are in the commitment to pay the additional funds each month.    

Good luck!   Debi
  • February 20 2013
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Bi-Monthly payments are only for convenience if you get paid 2x / month, you will not reduce the term at all. A 30 year loan will still have 360 payments with a reduction of interest in the 360th payment, that's all. If you want to reduce the term use either a Bi-Weekly payment plan or the best way is to do it yourself as Sunnyview describes below. 
  • February 20 2013
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Profile picture for sunnyview
With most bimonthly payment plans, you are simply making one additional mortgage payment a year by paying every two weeks. Some bimonthly plans are free through your lender with auto withdrawal, other companies charge you for "setting them up." I would never pay a fee to set one up.

You can achieve the exact same benefit by making one extra mortgage payment per year say when you get your tax return or by dividing one regular mortgage payment into 12 parts and paying that amount toward principal each month on your regular statement. That will cut the life of your loan and the interest you will pay.

There is a pre payment calculator to help you run the numbers for yourself. Hope it helps.
  • February 20 2013
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Profile picture for user9021544
yes it does work pretty much what you are doing is in sense giving the bank 1 extra payment a year and overtime that is what shortens your mortgage.
  • February 20 2013
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