How Can Biweekly Mortgage Saves You Money?
A homeowner with a biweekly mortgage pays half the monthly principal and interest payment every 2 weeks, which results in an extra monthly payment every year. (52 weeks per year divided by 2 weeks = 26 half-payments per year, which is the equivalent of 13 monthly payments rather than 12. You don't make two payments per month, you make a payment every two weeks.)
Because of the extra month's payment, a biweekly mortgage pays off earlier than a monthly mortgage will because the 13th payment is applied entirely to the principal balance.
The biweekly mortgage confuses a lot of people because they mistake the interest payments made over the life of the loan with the interest rate. Total interest payments paid over the life of a loan depend on the rate, on the amount borrowed, and on how rapidly the loan itself is paid off. Converting a conventional loan to a biweekly doesn't change your interest rate. What it does is use the extra payments you make every year to reduce the principal balance, which in turn reduces your total interest payments.
The loan is paid off early, just as it would have been if you had begun with a mortgage carrying a shorter term. (In fact, borrowers taking out a new loan who are attracted to the accelerated repayment schedule on a biweekly are usually better off with a conventional loan having a shorter term. For example, 15- and 20-year loans often carry lower rates than 30-year loans, while a borrower taking a 30-year biweekly will pay the 30-year rate, even though a 7% biweekly pays off in about 23 years.)
If you already have a 30-year mortgage and are attracted by the prospect of paying it off early, there is nothing wrong with converting it to a biweekly, but it will cost you. (After all, no lender will do the work of converting your existing loan into a biweekly without being compensated for their effort.)
If you don't already have a biweekly current mortgage refinancing rate, there are easy alternatives that will cost you nothing. If you regularly receive a bonus at the end of the year, for example, make it a habit to send your lender an additional check equal to the amount of the bonus, marked "additional principal," along with your regular check for the normal monthly payment. Keep in mind that if you make an extra payment equal to 1/12 of your regular monthly payment at the end of each month, you will pay off the balance just as you would with a biweekly. (Remember though, your total payment probably includes an escrow amount for taxes and insurance, so you don't need to include escrow amounts in the equation.) You start reducing the balance (and interest on that balance) with the first additional payment.
There is one problem: the alternative approaches we just mentioned require self-discipline on current mortgage rates Florida – which you may or may not be able to stick with. Having a third party set up the procedure, and then legally obligating yourself to making the additional payments, forces the discipline on you. If you think about it, this "enforced discipline" is the only service you receive when you purchase a biweekly deal from a third party.
Whether you need that enforced discipline, only you can decide – but you can save money and pay off your loan earlier with a biweekly home Illinois mortgage refinance. We recommend that you don't buy a biweekly plan; some companies will charge up to $500 or more up front, plus a monthly fee. Calculate your own payment and create your own biweekly plan at no cost instead.
Because of the extra month's payment, a biweekly mortgage pays off earlier than a monthly mortgage will because the 13th payment is applied entirely to the principal balance.
The biweekly mortgage confuses a lot of people because they mistake the interest payments made over the life of the loan with the interest rate. Total interest payments paid over the life of a loan depend on the rate, on the amount borrowed, and on how rapidly the loan itself is paid off. Converting a conventional loan to a biweekly doesn't change your interest rate. What it does is use the extra payments you make every year to reduce the principal balance, which in turn reduces your total interest payments.
The loan is paid off early, just as it would have been if you had begun with a mortgage carrying a shorter term. (In fact, borrowers taking out a new loan who are attracted to the accelerated repayment schedule on a biweekly are usually better off with a conventional loan having a shorter term. For example, 15- and 20-year loans often carry lower rates than 30-year loans, while a borrower taking a 30-year biweekly will pay the 30-year rate, even though a 7% biweekly pays off in about 23 years.)
If you already have a 30-year mortgage and are attracted by the prospect of paying it off early, there is nothing wrong with converting it to a biweekly, but it will cost you. (After all, no lender will do the work of converting your existing loan into a biweekly without being compensated for their effort.)
If you don't already have a biweekly current mortgage refinancing rate, there are easy alternatives that will cost you nothing. If you regularly receive a bonus at the end of the year, for example, make it a habit to send your lender an additional check equal to the amount of the bonus, marked "additional principal," along with your regular check for the normal monthly payment. Keep in mind that if you make an extra payment equal to 1/12 of your regular monthly payment at the end of each month, you will pay off the balance just as you would with a biweekly. (Remember though, your total payment probably includes an escrow amount for taxes and insurance, so you don't need to include escrow amounts in the equation.) You start reducing the balance (and interest on that balance) with the first additional payment.
There is one problem: the alternative approaches we just mentioned require self-discipline on current mortgage rates Florida – which you may or may not be able to stick with. Having a third party set up the procedure, and then legally obligating yourself to making the additional payments, forces the discipline on you. If you think about it, this "enforced discipline" is the only service you receive when you purchase a biweekly deal from a third party.
Whether you need that enforced discipline, only you can decide – but you can save money and pay off your loan earlier with a biweekly home Illinois mortgage refinance. We recommend that you don't buy a biweekly plan; some companies will charge up to $500 or more up front, plus a monthly fee. Calculate your own payment and create your own biweekly plan at no cost instead.