Biweekly Morgage Program - Explains Biweekly Plans

Is A Biweekly Morgage Program Right For You?

A Biweekly Morgage is a loan payment plan wherein borrowers make payments every two weeks rather than a single monthly payment. This Biweekly payment is exactly half of the amount a normal monthly payment would be. The effect of this can be very powerful in terms of savings but these savings are often quite misleading and deceptive. Use the following example to understand why:

Consider a 30 Year morgage of $200,000 with a monthly payment of $1,264.14. When you convert this loan to a Biweekly Program your new payments would be $632.07 every 2 weeks. This will result in your loan being paid off nearly 6 years sooner than it would've otherwise been paid off. The total savings in terms of interest would be $58,747.11.

The key to these savings, however, is that by making payments every 2 weeks all you have really done is make 26 'Half Payments'---or 13 Full Payments instead of a Full 12 Payments (as would've been made under a traditional payment plan). So the 'savings' are really nothing more than the effect of making one full extra payment each year. What does this all mean? It means that you can remain in your existing morgage and add 1/12 of a payment onto your regular payment and get the same results. For example, if your monthly payment were $1,000 then you can pay $1,083.33 each month and get the same results as a Biweekly Payment Plan. This is often the best thing to do considering that many large companies charge significant amounts to convert loans to Biweekly Programs.

Other Important Morgage Terms

Basis Point - A unit of measure: 1/100th of one percent. For example, the difference between a 9.0% loan and a 9.5% loan is 50 basis points.

Bankruptcy - The legal process in which a person or firm declares the inability to pay debts. Upon a court declaration of bankruptcy, a person or firm surrenders assets to a court-appointed trustee, and is relieved from the payment of previous debts.

Bimonthly Morgage - A mortgage on which the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th.

Broker - An individual or company who does not fund loans himself, but facilitates the processing or approval procedures for a customer. A broker generally uses a lender to approve and close loans for customers rather than close and fund the loan himself or itself.

Buy-Downs - Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply to the full duration of the loan or just the first few years. A buydown may be used to qualify a borrower who would not otherwise qualify. This is because a buydown results in lower payments which are easier to qualify for.

Biweekly Loan and Morgage Programs Are Increasingly Popular