Biweekly mortgage

A Biweekly mortgage is not a correct term, as there is no such thing as a biweekly mortgage in the United States.

Other countries, like Canada, do have bi-weekly mortgage types. In fact Canada has Monthly, Semi-monthly, Bi-weekly, Weekly, Accelerated bi-weekly and Accelerated weekly types.^[1]

Lenders in the United States will only accept monthly payments, they will not accept partial payments or biweekly payments; except extra money to be applied to the monthly payment that is included in the monthly payment. There is NO mortgage loan payment plan in the United States which the borrower makes payments toward the principal and interest every two weeks instead of once monthly. Regulation allows the mortgage loan companies to not accept partial payments. That was our government's answer to the Mortgage Loan Companies demands of compensating for losing the right to charge prepayment penalties. The government compromised. All other loans can be paid every two weeks. The monthly payment would pay the interest and pay to the principal, the second payment made two weeks later (in any amount you wish) will go directly to the principal of that loan and will save the consumer a large amount of money paid to interest only. This Biweekly Savings Plan or Biweekly Equity building plan in NOT paying a half a mortgage payment every two weeks. (I'll have to finish this later)

The biweekly payment is exactly one half of the amount a monthly payment would be. Though it depends on other factors such as the interest rate of the loan, a biweekly mortgage payment plan often saves the consumer money over the life of the loan.

For example, a 30-year mortgage of $200,000 with an interest rate of 6.5% will require a monthly payment of $1,264.14. When this mortgage is converted to a biweekly mortgage payment plan, the payment will be $632.07 paid every two weeks. Paying the mortgage this way will result in the mortgage being paid off nearly 6 years sooner and it will result in a savings of $58,747.11.

The key difference between a biweekly mortgage payment plan and a traditional mortgage payment plan is that instead of making 12 full payments each year, 26 half payments--the equivalent of 13 full payments--are made each year. On a biweekly mortgage payment plan, some months will require 3 payments or 1 and one half traditional payments. Finance companies use this pattern to their advantage. Finance companies charge interest on a per diem basis instead of monthly. The consumer's repayment is scheduled on a monthly basis. This allows the finance companies to collect an additional 2 weeks of interest every year. Paying biweekly payments allows consumers to eliminate the additional accrued interest charges.

Most lenders do not offer an actual biweekly payment program and rely on 3rd party processors primarily because they do not accept partial payments from the consumer. Although there are some fees involved, the biweekly programs available for enrollment online can save the consumer on a mortgage and reduce the length of time required to pay back the loan. Some biweekly payment processors do not charge up-front fees and instead deduct a fee from the savings accrued by following the biweekly pattern.

Biweekly payments are also offered on other types of loans. Biweekly payments for auto loans have been becoming increasingly popular.

Criticism

Many real estate experts argue that keeping an existing monthly payment mortgage and making one extra payment each year will result in the same savings as a Biweekly Mortgage payment plan would.^[2] They also argue that some mortgage companies charge large amounts of service fees to convert a mortgage to a Biweekly payment plan, and this may constitute an indecorous business practice on behalf of these mortgage companies. Another argument against a Biweekly Mortgage is that the lender and 3rd party processors place the first half of the monthly payment into holding until the second half of the monthly payment is applied. This system allows the bank to minimize profitability losses from the program. The Biweekly Mortgage payment program would be much more real, lucrative, and less misleading if interest and principal was applied to the account on a biweekly basis.

References

1. ↑ http://www.rbcroyalbank.com/mortgages/accelerated_payment_schedules.html
2. ↑ http://www.nytimes.com/2011/07/03/realestate/the-benefits-of-a-biweekly-mortgage-plan-mortgages.html