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Are Biweekly Mortgages Really Worthwhile?
By: Jeanette Joy Fisher
You may have heard people, especially mortgage lenders, extolling the virtues of
biweekly payments, saying that you can save thousands of dollars and take 5-7
years off your mortgage--and then offering to set up a biweekly plan for you for
as little as $400. But you don't have to spend $400 to begin saving money and
time on your mortgage. In fact, you don't have to spend anything at all! You can
set up a money-saving mortgage payment plan yourself--easily and at no extra
cost.
The key is to look carefully at the fine print in many biweekly plans. You find
that even though you'd be making biweekly payments, the lender may only post
them to your account on a monthly basis, which means that you wouldn't be saving
anything on interest, because mortgage interest is paid in arrears (as opposed
to rent payments, which are paid in advance). Your only real savings would be in
the fact that you'd be making the equivalent of one extra payment a year. That’s
a good thing, of course, but you don't need to pay someone $400-500, possible
monthly maintenance fees, to be able to accomplish the same results.
Here’s how biweekly payments save time and money: By making biweekly payments,
you actually end up making an extra monthly payment each year. Over the course
of a year, you'd make 26 payments (one every other week for 52 weeks), which is
the same as making 13 monthly payments. Making one extra payment per year will
shorten the life of your loan and save you thousands of dollars.
But you don't have to make biweekly payments to obtain those savings. Here are a
couple examples of how you can save big money, using the same basic idea:
If you get paid every two weeks, divide your monthly principal and interest
payment in half and then send your lender a check for that amount during those
months in which you receive three paychecks. Just sending in those two extra
checks will be the equivalent of one extra payment a year.
If you don't want to send lump checks, you can get the same results by dividing
your monthly principal and interest payment by twelve and then adding that extra
amount to your payment every month. Normally, that figure won't put too much
extra strain on your budget, and it will add an extra mortgage payment to your
loan every year.
You really can save significant amounts of money and shorten the life of your
loan by making extra payments, but you definitely don't have to pay a lender
$400-500 to do it. Making those extra payments is easy to do yourself, and at no
extra charge--which is always a good thing.
© Copyright 2005 Jeanette J. Fisher All rights reserved.
About the Author:
Professor Jeanette Fisher is the author of "Credit Help! Get the Credit You Need
to Buy Real Estate," and other books. Real estate financing questions? Visit the
Real Estate Credit Help Center for articles, Credit Tips ezine, and blog:
www.recredithelp.com |
