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
Adjustable rate mortgages on which the interest rate is mechanically determined based on the value of an interest rate index. Indexed ARMs are distinguished from Discretionary ARMs, in that ...
Charging unwary borrowers interest rates and/or fees that are excessive relative to what the same borrowers could have found had they shopped the market. ...
Having the builder borrow the money needed for construction. ...
A sale price below market value, where the difference is a gift from the sellers to the buyers. Such gifts are usually between family members. Lenders will usually allow the gift to count ...
The definition of affordability in real estate is simply a buyer’s capacity to afford a house. Affordability is usually expressed in terms of the maximum amount a buyer will be able ...
The period over which the interest due the lender is calculated. The interest accrual period may or may not correspond to the payment period. On the annual accrual mortgages in the UK, ...
Acceleration Clause is a contractual provision inserted in a mortgage, a bond, a deed of trust or other credit vehicles, that gives the lender the right to demand repayment of the ...
Programs offered by some lenders under which a borrower who is able to secure a grant or gift equal to 2% of the down payment will only have to provide a 3% down payment from their own ...
Assuming responsibility for someone else's payment obligation in the event that that party defaults. ...
Have a question or comment?
We're here to help.