If done correctly, biweekly mortgage payments can save you substantial amounts of money. The idea is based on the fact that a monthly mortgage means you make 12 mortgage payments a year. But on a biweekly schedule, you will end up making the equivalent of one extra monthly payment each year. Find the Best Mortgage Loan for Your Needs.
Here are some of the benefits of a biweekly mortgage schedule:
- You will pay off your mortgage faster. A 30-year mortgage will be paid off in about 22 years.
- You will build up equity in your home more quickly.
- You can arrange to have payments taken directly from your bank account automatically.
- You will save thousands of dollars over the life of the mortgage. For example, by paying biweekly on a $100,000, 30-year fixed rate mortgage at a 6.5 percent interest rate, you could save more than $30,000.
But a biweekly payment schedule isn’t for everyone. First you need to make sure the biweekly mortgage offer will actually save you money.
Most lenders charge a fee for borrowers to convert to a biweekly payment plan. Also, not all lenders apply mid-month payments to the loan balance when the payment is received; some hold them in an account and apply payments only once a month. In this scenario, you are gaining nothing over sending in one check — and you are paying a fee for this privilege. Read the agreement very carefully and watch out for scam artists or lenders with contracts that do not stipulate that they will apply the money to the principal when it is received. Avoid These 10 Mistakes When Seeking a Mortgage.
While switching to biweekly mortgages has become popular, you can actually get a very similar result yourself by making one extra payment each year. This isn’t quite as simple as sending in an extra check, though. You’ll need to contact your lender and let them know that you want this money applied to the principal, and that you are not sending in a check early for the following month. This will get you most of the benefits of paying biweekly without any additional fees.