Will Biweekly Payments Save Money?
Question: I refinanced two years ago and received an offer to pay biweekly instead of monthly. Will this help to reduce my mortgage more so than with monthly payments? If so, how and where can I apply?
Answer: Making biweekly payments on your mortgage will absolutely cut your interest cost and shorten the term of your loan, to boot. Such an arrangement usually is set up as an automatic debit from an account you specify. The mortgage lender will sweep through that account every two weeks and collect exactly half of your required monthly payment.
How does it work? While there are only 12 months per year, there are 26 two-week periods. This means you are essentially making 13 monthly payments per year. In today's market, this can save you a bundle, especially if you start counting from the first monthly payment, because it reduces the term of a 30-year loan to about 25 years.
How much are the savings? On a $200,000 mortgage at 5%, you'll cut the total term by just about five years, while shaving off more than $34,000 in interest cost.
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