Biweekly Mortgages became popular in recent years because of their ability to increase equity quickly. They can be used with many types of mortgages. Usually, they are easiest to use with a fixed rate mortgage or an adjustable rate mortgage that adjusts every 6 months or less frequently. More frequent adjustments make it difficult to track the adjustments to your payment.

What is a biweekly mortgage?

A biweekly mortgage is simply a method of paying your mortgage a different way. For example, if your payment to the bank totals $2000.00 a month to your lender, a biweekly mortgage splits that payment into one-half payment every two weeks. So instead of a monthly check to your lender for $2,000.00, a biweekly mortgage would consist of a $1,000.00 payment every 14 days.

How does that help?

When you make a half payment every two weeks instead of a full payment once a month, you can dramatically cut the term of the mortgage and save thousands in interest. This occurs because there are 26 biweekly periods in a year. This means that you are making 26 half payments which equals 13 full payments. By taking advantage of the few extra days each month by paying every 14 days, you pay the lender one full extra payment a year. Since the only month with exactly 28 days, or two weeks, is February, paying every two weeks in other months leaves a few extra days to accumulate an extra half payment every 6 months.

What will that do for me?

An example would be a homeowner who has a fixed rate 30 year mortgage at 6.25% for $200,000. He has already paid for 12 months in monthly payments. His total monthly payment including tax and insurance escrow is $1231.43. His current balance after paying for one year on this mortgage is $196,384. As you can see, he paid his mortgage for one year and only paid off $616.00 of the original balance, but has paid about $16,000 to the lender. Because amortizing loans are front loaded with interest, the payment in the early years are mostly interest to the lender and very little principal. No wonder the banks love to lend money. By paying this loan on a biweekly basis, at $615.72 per payment, he will pay off the loan in only 23.7 years instead of the 29 years remaining on the loan as originally paid. The interest savings would be $49,451 over the remaining life of the loan.

Some lenders offer an option to further accelerate their loan payoff by adding an extra amount to each biweekly debit. This can payoff the loan even earlier than with a straight biweekly loan payment. This way you can target your loan payoff date date to coincide with a retirement, or another date you choose. It's never a bad idea to get out of debt.

How do I get started?

In recent years, many lenders have begun to offer a biweekly option. Typically there is a small set-up fee for the program. There is also a charge for the debit fee since these payments are debited from an existing account. Since this type of program is based on payments every 14 days, the only way the lender can insure timely payments is by direct debits. Generally there is no grace allowed for late debits. If you embark on this type of program, you must be sure that the funds are available for the lender. Missed debits usually mean that you will be dropped from the program.

There are some third party programs available that act as intermediary to collect and forward your payments to the lender. They also charge set-up fees and monthly fees to maintain the program. If you are able to budget to handle the payments, then biweekly mortgages may be a good option for you. At the very least, you will build equity faster and maybe pay off your mortgage years sooner. Remember, lenders will not accept two payments a month from you unless you are enrolled in one of their programs, so you can't do this on your own.