Biweekly mortgage programs are being advertised everywhere. Many of these services charge large fees to set this up for you. What many people don't know is that you do not need one of these services to take advantage of these benefits.
In essence, a biweekly mortgage allows you to pay one extra payment a year thus saving you thousands of dollars in interest and paying off your mortgage early. Let's examine this a little deeper.
Let's examine how this process works. A standard fixed rate mortgage has 12 regular monthly payments. Now let's get out a calendar and review how the bi-weekly mortgage process works.
Now that you have a calendar let's get started. Start by circling every other Friday for a whole year. Now go back and count all the circled Fridays. As you will see there are 26 of them. Let's consider these Fridays as your new payment dates. If Fridays are not good for you, choose another day of the week. The process is the same for all of them.
When you review the calendar, you'll see that there are two months that have three payment dates while the rest of the months only have two payments. Now divide your regular mortgage payment by two. This is your new bi-weekly mortgage payment.
The two months where you pay three biweekly payments rather than two make up the 13th mortgage payment. This one additional payment is credited towards the principal mortgage balance and will save you a lot of money on interest and allow you to pay off your mortgage on average 7.5 years sooner.
Nearly 99% of all mortgages carry a "no pre-payment penalty" clause which allows you to pay off your mortgage early. Most lenders recognize biweekly payments and will even set it up for you at no charge. If by chance they will not set it up for you, you can always mail the payments in on your scheduled date.
Closing Comments
An easy tool to use to help you set this up is a bi-weekly mortgage calculator. This calculator will calculate the biweekly payments and show you how much money you will save.
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