Preferred Payment Plan Options–Mortgages
I was researching my ARM mortgage yesterday with Wells Fargo, confirming and re-confirming the date that they will be pulling my new rate, when the last date I can pay down on principle prior to them setting my new payment etc. Well the lady on the phone was very helpful and she gave me to another Wells Fargo website and I jumped on that and they had this category called the “Preferred Payment Plan Options” and the word “FREE” popped out at me. I am sure you have gotten mail from companies saying they will set you up on a bi-weekly payment plan etc for a fee….which doesn’t really make sense to pay for since you can do the same thing yourself, it is having the discipline to make the extra payments throughout the year. I was interested in seeing the program since it was free. Well with Wells Fargo you can set it up to pull bi-weekly with your paycheck, or weekly or monthly. The premise behind this is that you will get more payments in and save on interest along the way. So of course I needed to do a break-even analysis. Before my re-calculation date it really didn’t matter to be set up on such a program since it was an interest only loan but now that I am getting re-set and it will be interest and principle I wanted to see the difference. I am looking at doing it weekly, I thought it would save me more interest, breaking it down to week increments, 52 payments vs the 12 payments, it saved me not even $100 in interest, but what really did the saving was the extra payments, throughout the year which caused me to put almost an additional 2K down on the principle. This is where you see the savings. Not much of a difference between the weekly or bi-weekly since it will be either 26 or 52 payments but both work out better than the 12 payments.
If you are with Wells Fargo I encourage you to look into this program, if you are with another Mortgage company ask if they have a bi-weekly payment program for free. To get into the weekly/bi-weekly habit and widdle away at that principle will pay dividends down the road.
Debt2dreams 
Updated 04.30.09–okay so this AM I just signed myself up for a bi-weekly payment on my mortgage since I am now converted to a normal amoritization schedule. I even rounded it up so my interest will drop even faster each month. The snowball affect will begin automatically and I should start seeing a drop in my overall debt, yes I am still way into my deleveraging kick. I encourage you to do the same thing, if it is pulled the day after you get paid that money will be gone out of the account before you can spend it. I know, no fun, but it will be amazing the results you see from doing it. And also if it is being pulled with every paycheck, that means you don’t have to scrimp and worry about making the mortgage payment, it will be automatic. The beauty of the program, if I need to change it back to just the minimum I can call them back and change it. Easy as that.
Darcey
Update 04.20.10–more info for you. I still agree this is a good program, but I want to let you know, that when you put in your half payment at the 2 week mark, that money is put in “suspension” until the 2nd half comes in to complete the payment. SOOOO, that means you won’t be “saving” any money on the interest, but you will still put in 1 extra full payment or 2 extra bi-weekly payments per year. It also helps you level out your bills if you need help that way.