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Accelerated (Bimonthly) Payments

Mortgage Library: Types of Loan Programs: Accelerated (Bimonthly) Payments

The payment option commonly called 'bimonthly' is a bi-weekly payment option. However, some lenders offer a bimonthly payment service to homebuyers. With true bimonthly (or semi-monthly) payments, you pay half of the monthly payment twice a month (for example, you pay 1/2 of the monthly payment on the 1st of the month, and the other half on the 15th). There will be a total of 24 semi-monthly payments in a twelve-month period and the lender must not hold the payment until the end of the month and apply it to the loan balance right away.

Semi-monthly or bi-monthly payment plans don't achieve the same results as the bi-weekly payment plan and are rarely used. On a 30 year fixed mortgage, for example, it will take 29 years and 11 months to pay off (1 month sooner than a standard payment plan), and you will save only one month's interest.

Please note that if your lender withdraw half of the monthly payment from your bank account every half of the month, but apply the payments to your loan only once a month (as they did before), you will save nothing at all. This kind of bi-monthly payments, however, allow you the flexibility to schedule your monthly payments in a way that works better with your personal finances.

With bi-weekly payments, you pay half of the monthly mortgage payment every 2 weeks, rather than the full balance once a month. This is comparable to 13 monthly payments a year, which can result in faster payoff and lower overall interest costs. For example, the bi-weekly mortgage payment process can pay off a 30 year loan in approximately 19 years:

Loan Term: 30 years

  Regular Monthly Payments: Bimonthly Payment Plan: True Bi-Weekly Payments:
Beginning Loan Amount: $75,000 $75,000 $75,000
Interest Rate: 10% 10% 10%
Monthly Payment: $658 $658 (329 x 2) $658 (329 x 2)
Total Interest Paid: $161,942 $161,451 $104,331
Total Interest Saved: 0 $491 $57,611
Loan will be paid off: in 360 months. in 359 months. in 272 months.

There is another simple method for prepaying a mortgage loan: add an amount equal to 1/12 the monthly mortgage payment to each monthly payment:

  Regular Monthly Payments: Bimonthly Payment Plan: Plan with additional 1/12
of Monthly Payments:
Beginning Loan Amount: $75,000 $75,000 $75,000
Interest Rate: 10% 10% 10%
Monthly Payment: $658 $658 (329 x 2) $713
Total Interest Paid: $161,942 $161,451 $104,641
Total Interest Saved: 0 $491 $57,301
Loan will be paid off: in 360 months. in 359 months. in 252 months.

These methods of prepaying a mortgage may substantially step up the payment of the loan principal. Paying off the loan principal early will save monies by reducing the amount of interest paid on the loan.

There are outside bill-paying services that accept bimonthly or bi-weekly payments from you and then make your monthly payments to your lender on your behalf. If you decide to use a bill-paying service review carefully any promises of savings, and be sure to weigh any savings on your loan against the fees (enrollment and bimonthly transactions fees) you pay for the bill-paying service.


Related Articles:

Shopping For a Mortgage Information that will help you shop for a mortgage most effectively.

Types of Mortgage Loans Review characteristics of all the basic loan programs available today.

How advantageous are extra payments? A Mortgage Calculator.


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