Bi-weekly Mortgage

Bi-weekly Mortgage is a type of fixed rate mortgage in which schedule payments are made every two weeks instead of standard monthly payment. Each bi-weekly payment is equals to one-half of the monthly payment. It results in substantial savings in interest for the borrower since the mortgage is paid off sooner.

Benefits:

• Bi-weekly mortgages increase the number of payments, that is, instead of making 12 payments a borrower has to make 26 payments in a year. This helps to reduce the interest amount paid on a bi-weekly basis. So a borrower pays lower interest compared to that paid throughout the loan term.
  
  
• Bi-weekly mortgages help in the repayment of the loan within a short term. This enables to build up home equity at a faster rate.
  
  
• The bi-weekly payments can be drafted automatically from the bank account of the borrower.
  

For example, A loan amount of $25000 is taken for 5 years at 7% interest rate. Each interest payment made on a bi-weekly basis is $247.51 and the total interest is $4215.79. Using this payment plan, the loan gets repaid 5 months before the usual loan term. But if the same loan is repaid by making monthly payments, each interest payment amounts to $495.03. The total interest in this case is $4701.80. This helps the borrower to save $486.01. So a borrower gains because of reduction in interest payments and the loan term.

Related Article:

• Fixed Rate Mortgage