Are Biweekly Mortgages Really Worthwhile?
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.
Professor Jeanette Fisher is the author of "Doghouse to Dollhouse for Dollars," "Credit Help! Get the Credit You Need to
Buy Real Estate," and other books. Real estate financing questions? Visit the new Real Estate Credit Help Center for
articles, Credit Tips ezine, and blog: http://www.recredithelp.com
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'Flat' mortgage market aheadCUNA News (press release)This year is turning out like most people predicted in the mortgage arena. Rising interest rates have significantly hampered the mortgage refinance market. The growth of the purchase market can only be as great as the inventory of available homes.
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