 No need for biweekly mortgage
|
 Dear
Dr. Don,
Do biweekly mortgage payments save more money than just paying an extra payment each year? I realize that going the biweekly route I would be paying 26 half payments vs. 12 full payments.
Thanks, -- Annetta Amortization
 Dear
Annetta,
What brings down the interest expense and the life of the
loan isn't the biweekly aspect of the mortgage but the impact of making the dollar
equivalent of 13 mortgage payments a year instead of 12. Here's a comparison of
a $100,000 mortgage at 6 percent.
I used Bankrate's mortgage
calculator to find the total interest expense for the monthly mortgage payment
and the monthly mortgage plus additional principal payment examples, and Bankrate's
biweekly mortgage comparison
calculator to solve for the total interest expense for the biweekly mortgage.
 |
| Mortgage comparison | |
|
| | Monthly | Monthly
+ extra 1/12th payment | Biweekly |
| Loan amount: |
| Interest rate: |
| Number of payments: |
| Loan payoff (years): |
| Loan payment: |
| Additional principal payment: |
| Total interest: |
| Difference in interest expense: |
|
There's a host
of biweekly mortgage calculators available on the Web, and they won't all give
you the same answer because of the assumptions made in constructing the calculator.
Bankrate's showed the highest savings of any calculator I used. If you're taking
an existing mortgage and paying a financial services firm to restructure it into
a biweekly mortgage, you'll lose some of the interest savings and are likely to
pay some additional fees and expenses. I'm not a big fan of
biweekly mortgages. You can capture similar savings by making additional principal
payments on your own. In my example, tacking on 1/12th of a payment as additional
principal when you make your monthly payment captures 96 percent of the cost savings
from a true biweekly mortgage. The reasons to convert to biweekly aren't very
compelling. It also reduces your financial flexibility by making the additional
payments contractual vs. optional. There's no compelling reason to convert your
existing mortgage to a biweekly mortgage. To ask a question
of Dr. Don, go to the "Ask the Experts"
page, and select one of these topics: "Financing a home," "Saving
& investing" or "Money." | 
