How Do Biweekly Mortgages Work?

If you currently own your own home and are paying a mortgage, there's a good chance you have received a variety of related home financing offers from banks, or other lenders. One of these may have been an offer to switch your conventional mortgage over to a biweekly mortgage.

It's an offer that sounds promising. The enclosed literature states that a biweekly mortgage can cut between five and seven years off the term of your mortgage, therefore saving you thousands of dollars in interest charges. Sounds great, but does it really work?

Indeed it does, and it works very simply. Instead of making your full mortgage payment monthly, you make half of your monthly mortgage payment biweekly. By paying in this manner, come the end of the year you will have made an extra payment.

Here's an example, let's assume that your full monthly mortgage payment is $1,200. When you make 12 full monthly payments, at the end of the year you would have paid $14,400.

If you were to make your mortgage payment biweekly, you'll have made a total of 26 payments of $600. each by the end of the year. These payments will total $15,600. The one extra payment that results from the biweekly plan is what reduces both your loan balance and your interest charges.

This simple method can and will cut years off your mortgage payment term. That extra $1,200 a year eats away at your mortgage balance and gets the mortgage paid off early.

Using a biweekly mortgage payment plan to pay off your mortgage early is a sound financial move. To participate in a biweekly mortgage, also called an Accelerated Payment Plan, it is necessary to sign up for one at a participating lender.

However, before you run out seeking a biweekly mortgage plan, you must be aware that there's a catch. To participate in the biweekly mortgage that your lender is offering, you will have to pay a significant fee. This fee is usually between $300-$500. In addition, some lenders may also charge a monthly processing fee.

Can you participate in this plan without having to be hit with additional fees? Yes, and I will show you a method of paying off your mortgage that has all the benefit of a biweekly mortgage, but without any fees at all.

How? Simply take the amount of your monthly mortgage payment and divide it by twelve. In keeping with the example above, the $1,200 monthly mortgage payment divided by 12 equals $100. Now simply add $100 to your monthly payment. Make certain that you include a note, or check off the box on your payment coupon that indicates you want this additional $100 to be applied to the principal of your loan.

Now, by making 12 payments of $1,300, at years end you will have paid $15,600, and as simple as that you've received all of the benefits of the biweekly mortgage without paying any fees or service charges at all.

Copyright 2007 Carl DiNello