mortgage

Should I switch to a biweekly mortgage?

Don TaylorQuestionDear Dr. Don,
If I were to switch from a monthly mortgage payment to a biweekly payment, the new payment also would have to cover taxes, homeowners insurance and private mortgage insurance, or PMI.

My total monthly payment is currently $669.60. If I started in March, I would pay on a Wednesday so the payments would be on March 7 and 21. If there are five weeks like in February, the payments would be on Feb. 1, 15 and 29, correct? So how much would my biweekly payments be? I want to get this worked out before I call my mortgage company to set it up.
-- Lisa Lineup

AnswerDear Lisa,
I don't recommend that homeowners switch to a biweekly mortgage. It's just not worth the bother or expense. Homeowners think there's some magic to these payments that reduces the interest expense on their loan. That's not it. The magic is in making the equivalent of 13 monthly mortgage payments per year.

You can do as well by making additional principal payments of one-twelfth the monthly mortgage payment each month. Or, if you're paid biweekly, you'll have two "three-paycheck" months every year. Use that money to make the additional principal payments.

Besides the bother and expense, you'll reduce your financial flexibility. You've made it contractual that you'll make these biweekly payments. With additional principal payments, you have the flexibility to skip an additional principal payment if money is tight one month.

While there's no need to make an extra PMI, property tax or property insurance payment each year, the loan servicer may choose, if prevailing law allows, not to adjust the biweekly payments, leaving the additional money to accumulate as a cushion in the escrow account. If you go against my advice and pursue a biweekly mortgage, you'd want to talk to the mortgage company about how these expenses are spread over the 26 biweekly payments.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

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." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
MORTGAGE & REAL ESTATE NEWSLETTER

Timely market news and advice for consumers ready to buy, sell or invest in real estate. Delivered weekly.

Blog

Polyana da Costa

Bullish jobs report bad for rates?

The employment report released this morning is great news for the economy but not so much for mortgage borrowers.  ... Read more

advertisement
Partner Center
advertisement

Connect with us