A mortgage that requires payments to reduce the debt every two weeks. The 26 biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard
30 year fixed rate mortgage, and they are usually drafted from the borrowers bank account. The result for the borrower is a substantial savings in interest.
Usally one can expect as much as 4.5 years reduced of a 30 yr mortgage. This can be quit a savings in the long run. If your payment is 700 a month and you knock off 4.5 years thats a savings of 37,800 dollars.
Paying your mortgage bi-weekly has great advantages for borrowers who are paid every 2 weeks. The mortgage payment is deducted from your account around the same time as your paycheck allowing you more control over your budget.
One thing to look for with bi-weekly programs are fees. Check with your lender and find out what fees are charged before signing up.
In order to benefit from the bi-weekly payment advantages, try to avoid a third party service when establishing the payment structure. Most lenders and banks will offer the service directly and you will avoid any unnecessary fees.
Please note, some lenders will re-amortize the principle balance to reflect a lower amount due. Therefore the extra payments would lower your interest due. Ideally, this will be the true bi-weekly and the true cost of your loan (disclosed on a truth and lending statement) will decrease dramatically.
If for one reason or another, the homeowner finds it infeasible to set up a Bi-weekly program, the homeowner can achieve the same savings by making an extra 13th payment every year in addition to the normal 12 monthly payments. The reason a homeowner can pay off a mortgage faster with Bi-weekly payments is with a Bi-weekly payment plan, the homeowner is making 26 Bi-weekly payments every year, which actually amounts to 13 monthly payments. Although most banks allow pre-payments of up to 20% of the outstanding balance without inflicting a pre-payment penalty, always check with your particular lender before making an extra payment.
Therefore, when considering a bi-weekly payment plan, it would be most advantageous for you to first ask if it is a plan that actually re-amortizes your mortgage balance every two weeks. This type of bi-weekly payment is more effective and pays off more interest than just adding an extra monthly payment a year.
Most lenders do not post the payment until both payments have been made so if you do not feel comfortable making biweekly payments then you can send in 1/12 of your payment every month or an additional payment or more at the end of the year.
