I have talked about most common types of mortgages, as well as compared the traditional 30 year fixed rate mortgage with the 15 year one. However, I haven’t spent any time discussing the Biweekly Mortgage, which seems to be an upcoming trend. This type of mortgage combines the main advantages of both, the 30 year fixed rate and the 15 year fixed rate mortgage.
So, the biweekly mortgage is a fixed rate mortgage, which makes is a comparable to the 30 and the 15 year mortgage.
It is amortized over 30 years, but the payments are made biweekly (hence the name). So, you would pay half your mortgage amount per pay period. What happens is, you make 26 mortgage payments a year, which equals one additional monthly mortgage payment per year. This additional monthly payment per year significantly reduces the principal amount as well as shortens the duration of the mortgage to an average 19 – 21 years. This 11 or 9 year difference will mean big savings in the amount of interest paid as well.
Consumer Reports analyzed various types of mortgages, and according to the results, a $100,000 biweekly mortgage at 8% interest rate can save you $34,000 in interest when compared with the traditional 30 year fixed rate.
Nowadays, most people get their paychecks electronically deposited right into their accounts, so this biweekly mortgage is highly compatible with most paychecks. Just set up an automatic allotment or payment for your mortgage each paycheck. However, if you can’t maintain a steady checking/savings balance for whatever reason; this option may not be the right one for you.
Otherwise, I think if you’re considering purchasing a home, this might be something worth thinking about. If you can save $34,000 on a $100,000 mortgage, savings are even more substantial for larger mortgages. That is a lot of money and you build up equity quicker than with a traditional 30 year mortgage, so you end up truly owning your house about 10 years sooner.
If I were buying a home like I originally intended to, but I won’t because the California housing market sucks, I’d say – SIGN ME UP!
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