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Biweekly Mortgage

A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.

Homeowners should beware of third parties who contact them and offer to set up bi-weekly payments. In most cases this can be accomplished by contacting your loan servicer without the need of any third party.

Even if your loan servicer does not offer a bi-weekly mortgage payment program you can still simply make bi-weekly payments on your own and any excess money the servicer receives over and above the interest due will be applied to principal reduction.

One of the most effective bi-weekly mortgage plans are that where the loan actually re-amortizes every 2 weeks. This actually will save more than just an extra payment per year and pay off the mortgage earlier than the typical bi-weekly payment plan. Ask your lender whether the bi-weekly payments are actually re-amortized every two weeks, or if it is simply making an extra payment every year.

Most bi-weekly payment providers will also charge you a very small fee either per withdrawal or per month. This is usually just a couple of dollars but I have seen this fee as high as 7 or 8 dollars per withdrawl. This adds up over the course of a year and you also usually have an initial setup fee charged from most biweekly provide. While bi-weekly programs are very helpful and can save a lot of money, you need to make sure that you are not overpaying for the program itself. If you have the willpower to make the extra payment once per year yourself this can save you some money, however, many consumers do not follow through with continuing to make the extra payments.

Biweekly shortens the time needed to pay off a 30 year mortgage by about 5 years.

One of the problem with biweekly is the fact that the lender withdraws payment every two weeks from the borrowers' bank accounts, so customers must have at least 3 or 4 payments worth of funds "lying around" in their bank accounts. If they don't have that kind of reserves, they would have to take care to have funds available for withdrawal. And that's a difficult task because funds are drawn on the day of the week (e.g. every other Friday) rather than the day of the month (such as the 1st of every month).

As an alternative, a client can get a "regular" mortgage, and make an extra payment every year. Making that 13th payment achieves a less effective but similar result as a biweekly mortgage, and depending on whether the escrow portion (property tax and hazard insurance) of the monthly payment is included in the extra payment, one can even pay off a 30 year mortgage in 23 years!

An example of the savings of biweekly payments would be as follows:

Mortgage amount: $100,000
Rate: 6%
Term: 30 years

You would make payments of $302.06 every two weeks. You would make 639.2 payments amd cut your term down to 24.52 years saving you $24,405.

Borrowers should not commit to a loan that has a much higher interest rate simply because it will pay down the loan quicker. They can do this on their own by adding an additional 1/12 payment each month with their regular mortgage payment.

This is definitely a good program. But beware of those programs that charge you $400 or more for setup, then take your money every 2 weeks, yet only apply it to your mortgage account at the end of the month. You still get the extra payment every year, but don't save quite as much interest because they are not applying your payment when you actually pay it.. Try to go directly through your loan servicer for this program!

A mortgage that you make payments every 2 weeks, instead of monthly. The basic idea is that instead of making 12 monthly payments during the year, you make 13. The extra payment reduces the balance, significantly reducing the time to pay off a 30 year mortgage.

Biweekly payments are a great way to save money in interest. By making biweekly payments you are making an extra payment a year. If you do not want the hassle of making payments every two weeks make one extra mortgage payment a year. If you made your regular payments and made an extra payment at the beginning of the year you would be saving more that making biweekly payments.


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