Definition of "Biweekly Mortgage"

Richard Shuttleton real estate agent

Written by

Richard Shuttletonelite badge icon

Zion Realty

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Mortgage Terms

A lender that provides loans through mortgage brokers or correspondents. ...

A lender offering loans on the Internet who provides mortgage shoppers with the information they need to make an informed decision before applying for a mortgage and guarantees them ...

Refinancing that omits some of the standard risk control measures and is therefore quicker and less costly. The rationale for streamlined refinancing is that, while it is an entirely new ...

The number of days for which any lock or float-down holds. The longer the period, the higher the price to the borrower. ...

A comprehensive and time-adjusted measure of loan cost to the borrower. IC on a Mortgage: IC is what economists call an 'internal rate or return.' It takes account of all payments made by ...

The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house. Construction can be financed in two ways. One way is to use two ...

A borrower, usually refinancing rather than purchasing a home, who allows a lock to expire when interest rates go down in order to lock again at the lower rate. ...

A lender who specializes in lending to sub-prime borrowers. ...

A federal agency that guarantees mortgage securities that are issued against pools of FHA and VA mortgages. ...

Popular Mortgage Questions