Is a biweekly mortgage payment plan a good idea? This is a question I've been getting often from buyers right after they close on a new home which makes me think that mortgage companies are really pushing these programs now. A biweekly mortgage payment plan essentially means that you makehalf your mortgage payment every two weeks. The idea is that by doing so, you will pay off your mortgage much quicker and pay less interest over the life of the loan. To get the best answer, I turned toone of my favorite lenders, Tracey McVicker with SWBC mortgage since he is certainly the expert in these areas. Here is his advise.
Theoretically, it is better than just making your payments once a month. If you are making 26 payments per year, 1 every two weeks, in essence you are really making 13 full payments in a year's time. For example, in your client'ssituationhis Principal and Interest each month is $1527. By paying on a bi-weekly basis, he ends up paying additional Principal and Interest each month of $127.25 over the year. Thus it shortens the amortization from 360 months down to 311 or just under 26 years in his case. Additionally, it drops his total interest paid over the life of the loan from $229,947 down to $194,482! The only downside to the program is that the mortgage servicing company will charge $350-450 for the privilege of setting your account up that way. So, for those who are blessed with some self-disciplinethey can accomplish the same thing just by paying œx amount of additional principal and interest each month, and save the service fee.
Based on this, and further research I have done, it certainly seems like a biweekly mortgage plan is a good idea if you plan to stay in your home for awhile. If it is more of a short term stay though, then perhaps saving this money for a downpayment for your next property is a better idea. Keep in mind that during the first five years of your mortgage you pay very little towards principle reduction, most the payment goes towards interest. I've also heard that for homeowners in higher tax brackets, the interest write off on your taxes each year may outweigh the benefits of paying off a mortgage early so definitely consult your tax advisor before making any decisions. If you have questions about how the program works and if it might be a good option for you as you prepare to buy your next home, feel free to reach out to Tracey as well, his info is below.
Tracey McVicker
Senior Mortgage Consultant
SWBC Mortgage Company
400 Inverness Parkway, #160
Englewood, CO 80112
303-405-6400, Office
720-480-3737, Mobile
877-789-4499, Efax
LMB # 100023964 / NMLS # 257339
tmcvicker@swbc.com
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