Weekly vs. Biweekly Mortgages
- By dividing your monthly payment in half and paying that amount every two weeks, you make a total of 26 payments in a year rather than 24 (if you paid half of the monthly payment two times each month). If this is done from the beginning of the loan, you will shorten the life of the loan by up to eight years.
- Weekly mortgage payments are a possibility, but you would have to arrange such a plan with your lender, who will probably be reluctant to undertake the additional processing time. If the lender charges a fee, your mortgage costs rise. It would be better to deposit the weekly amount into a savings account, then use that account as the source of funds for a biweekly or monthly payment.
- Biweekly or weekly programs will not reduce the amount of interest you are charged on the loan. The interest rate remains the same, and interest will be paid once a month by the loan servicing company. The savings from a biweekly or weekly program comes from the faster pay-down of principal over the course of a year.
Higher Monthly Payments
- Instead of signing up for a biweekly program, you can get the same effective reduction in mortgage-payoff time by making an additional payment of one-twelfth of your payment amount every month. You should attach a memo to the mortgage servicing company saying that you want the extra money to go toward the principal. Say your monthly payment is $1,200. When you pay an additional $100, you have paid down the principal at the same rate you would have with a biweekly program. The servicing company will not charge any additional fees, as this still represents a once-a-month transaction.
- Lenders may charge an enrollment fee for a biweekly or weekly payment program. These fees may be levied in a lump sum or charged every time you make a payment. For any payment arrangement, the bank can draft the payments automatically from your checking or savings account, saving you postage and the task of mailing checks out every two weeks and trusting the mail to deliver the payment on time.
- As a method of more rapidly paying off a mortgage, a biweekly plan makes sense. But as a use of limited investment money, you might be better off making full contributions to your individual retirement account, for which payments are tax-deductible, with the money you would otherwise direct toward the biweekly mortgage.