Biweekly Mortgages

By requiring half of your monthly payment every two weeks, biweekly mortgages change the amortization schedule and allow your loan to be paid off earlier than a traditional fixed rate mortgage. The early repayment results from the biweekly schedule, which leads to 13 full payments each year (26 half-payments).

While speeding up your loan’s amortization is certainly an admirable goal, it is questionable whether a biweekly mortgage is the best way to accomplish it. If you are attracted to the early payoff on a biweekly, you might also think about a fixed rate mortgage with a shorter term, such as 15-or 20-years.

Shorter term loans often have better deals on rates. A biweekly with a 30-year term would likely pay off in 23 years, so why not take a lower rate and go with a 20-year fixed rate with monthly payments?

If you prefer a mortgage with a longer term, you can still achieve the early payoff on your own, without actually choosing a biweekly mortgage. If you get a bonus each year, you may want to apply part of it to making an extra payment.

If the bonus is at least equal to one of your monthly payments, it will have the same effect as a biweekly. Another trick you can use to simulate a biweekly is increasing each monthly payment by one twelfth. This spreads the extra payment across the entire year and still makes for an early payoff of the entire mortgage loan.

You may also consider opening a deposit account with automatic payment privileges. Deposit half your monthly payment to the account every two weeks, and set up the account to make your monthly payment. At the end of the year, take the left-over money from the account and make an extra payment to reduce your loan’s balance.

These approaches all simulate the positives of a biweekly mortgage without actually paying for the option. However, they also require a level of financial self-discipline. If you believe you would do better having this discipline imposed externally, then you might want to choose a biweekly mortgage.