Biweekly Mortgages

Biweekly mortgages can sometimes seem like a magically good deal, but in reality they are often unnecessary. Biweekly mortgages work by requiring half your monthly payment every two weeks. You will end up making an extra month’s payment every year. As there are 52 weeks in a year, you will make 26 half-payments, for a total of 13 monthly payments. This extra payment each year is the “magic” that results in early repayment with a biweekly.

However, you don’t need anyone to set up this arrangement for you. You can do it yourself in a variety of ways. First of all, if you are attracted to a biweekly mortgage you might want to consider a short term mortgage instead. Shorter terms often come with a reduced interest rate, and can be somewhat comparable to biweeklies. For example, if you have a loan with a seven percent rate and a 30-year term on a biweekly schedule, it will pay off in 23 years. Why not take a lower rate and get a 20-year loan instead?

If you still prefer a 30-year fixed rate mortgage, you can do things on your own to ensure early pre-payment without adopting a biweekly schedule. If you get a yearly bonus, you can use it to make a partial pre-payment. If it is at least equal to one month’s payment, it will have the same effect as a biweekly schedule. You can also increase your monthly payment by one-twelfth and achieve the same early payment.

Another option is to open a deposit account with an automatic payment privilege, set up to pay your mortgage each month. Deposit half your monthly payment into the account every two weeks. At the end of the year, write a check from this account for an extra month’s payment.

Of course, all of these approaches require extra financial self-discipline. You may find that it is easier for you to schedule your mortgage as a biweekly and have the discipline imposed upon you through a legally binding agreement. Whichever you choose, making extra payments will allow you to pay off your mortgage significantly earlier than the scheduled thirty years.