Paying Your Mortgage Bi-Weekly: Does It Pay It Faster?

Biweekly Mortgage

A biweekly mortgage is a mortgage for which one-half payment is made every other week instead of a “full payment” made once per month. The homeowner makes 13 payments per year instead of the usual twelve, which accelerates the loan’s payoff schedule by approximately 6 years.

 

The “Regular” Mortgage: 12 Payments Per Year

The typical mortgage asks for one payment per month, which equals 12 payments per year. With a 30-year fixed rate mortgage, therefore, 360 payments are required to pay the loan in full. Each mortgage payment is split into two parts — a principal portion and an interest portion. The principal portion is applied to the amount that you owe the bank. This diminishes your remaining loan balance. The interest portion is your cost for borrowing from the bank. As your loan moves toward maturity, the balance between your mortgage payments’ principal-and-interest shifts. In the early years, a significant portion of your payment is comprised of interest and just a small part goes to paying down your balance. It’s not until later in your loan’s lifecycle does the principal portion of the payment start to grow. This repayment schedule is the reason why after 5 years or so, your loan’s balance has been barely paid down.

 

The Bi-Weekly Mortgage: 13 Payments Per Year

A bi-weekly mortgage payment program is meant to short-circuit your loan’s amortization schedule. Instead of taking 12 payments per year, the bi-weekly payment plan asks for one payment every two weeks, which adds up to 13 payments per year. Except that you can’t make 13 payments per year on your mortgage — that’s not how a mortgage works.

 

With a mortgage, you pay a certain amount of interest on an annual basis and that amount is covered in your first twelve payments. The 13th payment has to go somewhere, though, so it gets applied to your principal balance; the amount that you still owe to the bank. And, this is how a bi-weekly payment plan works. With each “13th payment”, your loan balance is reduced by the entire amount of the payment. You reach your loan’s payoff date sooner.

 

As a Full-Service mortgage lending organization, we live and breathe in the mortgage space. What’s in it for you? Possibilities and options. We will customize a solution to fit YOUR mortgage needs so that you can feel comfortable with the home you are buying and most importantly with your monthly mortgage payments. We truly believe that educating our clients it’s the clear path to ensure they are best prepared to meet their financing needs that fit their lifestyle. You will have many questions. We have all the answers.

 

We look forward to having the privilege of helping you with all of your mortgage needs. Call Us or visit us at www.homewaymortgage.com!

 

Jennifer Looper

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