 Biweekly mortgage vs. extra yearly payment
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 Dear
Dr. Don,
Do biweekly mortgage payments save more money than just paying an extra payment each year? Does it save money or not? -- Dan Deduce
 Dear Dan,
The magic in a biweekly mortgage payment is that you wind up making the equivalent of 13 monthly mortgage
payments in a year. It has virtually nothing to do with the fact that you're making a payment every two weeks.
A biweekly payment plan often charges an additional fee for the privilege and typically just aggregates your payments to make the regular monthly payment on your mortgage.
It's common for these plans to directly debit your bank account, so you don't have to worry about the extra postage
expense, but it still doesn't make economic sense if you have to pay a fee.
If you're paid biweekly, you'll have two, three-paycheck
months every year. Use those checks to make additional principal
payments on your mortgage that are equal to a full month's payment,
and you'll end up at the same place without all the hassle.
You can compare the two for yourself. Use Bankrate's
mortgage
payment calculator to see the effect of making additional principal
payments, in both interest savings and in how much time it will
cut off your loan. Use the biweekly
mortgage calculator to look at biweekly payments. You'll see
there's not much difference.
I'll always lean toward not making the additional
principal payments contractually, as they would be with a biweekly
mortgage. It takes a little more financial discipline to make the
additional payments voluntarily, but the resulting financial flexibility
can be really useful if you find yourself facing some unexpected
expenses.
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."
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