Biweekly Mortgage
Definition of "Biweekly Mortgage"
A mortgage on which half the monthly payment is paid every two weeks. This results in 26 payments per year, which is the equivalent of 13 monthly payments rather than 12. Because of the extra payment, the biweekly mortgage amortizes before term. For example, a 7% 30-year loan that is converted into a biweekly pays off in 286 months (23 years, 11 months). Benefit of a Biweekly: Borrowers do not need a biweekly to make extra payments. They can do it themselves in a variety of ways described below, but all require self-discipline. Having a third party set up the procedure and legally obligating borrowers to make the additional payments forces the discipline on them. New Biweeklies: Borrowers taking out a new loan who need the discipline provided by a biweekly can usually do better with a straight monthly payment loan carrying a shorter term. A 30-year loan converted into a biweekly carries the 30-year rate, whereas 15 and 20-year loans often carry lower rates. 15-year loans in particular generally carry rates 3/8% to 1/2% below those on 30s. Rolling Your Own Biweekly: Borrowers who already have a 30-year mortgage and are attracted by the prospect of paying it off early, have a number of options. One is to open a new account with a bank that has an automatic payment privilege and arrange for it to make their monthly mortgage payment every month. If they pay half the monthly payment into this account every two weeks, after a year the account will have enough money for a double payment. Increasing the Monthly Payment by 1/12: Another simple method is to divide the monthly payment by 12 and add that amount to the payment every month. Paying an extra 1/12 of the payment every month for 12 months is the equivalent of one full extra payment. This method pays off a loan a little sooner than a biweekly or a double payment at year-end because balance reductions begin with the first extra payment rather than after a year. A 30-year 7% loan will pay off in 285 months rather than 286. Simple Interest Biweeklies: On a simple interest biweekly, the biweekly payment is applied to principal every two weeks, which results in a faster payoff. Again, however, the difference is small. The simple interest version pays off the 7% 30-year loan in 284 months.
Popular Mortgage Terms
To define a home equity line of credit, we can also take a look at how credit cards work. Similarly to credit cards, home equity lines of credit are sources of funds that can be accessed ...
The payment of principal and interest made by the borrower. ...
The provision of the U.S. tax code that allows homeowners to deduct mortgage interest payments from income before computing taxes. Points and origination fees are also deductible, but not ...
The interest rate that is fixed for some specified number of months or years at the beginning of the life of an ARM. ...
In connection with a home, the value of the home less the balance of outstanding mortgage loans on the home. ...
A facility offered by some lenders to mortgage brokers where de jure the brokers become employees of the lender but de facto they retain their independence as brokers. One of the ...
The array of laws and regulations dictating the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure. ...
A collateralized debt obligation, also known as CDO, defines a complex financial product. Various loans, mortgages, bonds, and valuables back this commodity, and institutional investors ...
Interest from the day of closing to the first day of the following month. To simplify the task of loan administration, the accounting for all home loans begins as if the loan was closed ...
Have a question or comment?
We're here to help.