Should You Do A Bi-Weekly Mortgage?

August 3rd, 2012

I get a lot of clients asking me if they would save a lot of money by setting up a bi-weekly mortgage payment plan. A bi-weekly mortgage is one where you make a partial mortgage payment that gets deducted out of every paycheck, which for most people is every 2 weeks. With 52 weeks in a year, and 26 pay periods if you get paid twice a week, it is a convenient way to make 13 payments a year instead of 12. I hear people say it is a fraud, and not to do it. And then I hear people say that you can cut 13 years off of a 30 year loan, and that it is amazing. It is neither. Yes, you will save money, but this plan sets up something formally, at a cost to you, to do something that you can do for free. And no, you cannot cut 13 years off of your 30 year loan. This is just one form of pre-paying your loan, and cutting some years off of it, and hence cutting some interest off of your loan.

And it is not that it is a fraud, but it does seem to be a mass marketing thing. A bi-weekly loan is simply a form of pre-payment, and it is a convenient way to pay some mortgage balance off early each year. A bi-weekly mortgage plan causes you to make 13 payments a year. And the number of years you can cut off of your loan depends on the interest rate. I have seen the ability to cut 7 years off of a 30 year loan, but this was in an 8% interest rate environment. Using the same loan balance today but at 3.5%, the savings is more like 3.5 years.

I would do any pre-payments on my own, and I would not use a bi-weekly mortgage. That is my opinion. You can go to my home page, and click on the Mortgage Calculators button on the right side of the page, and use the Mortgage Payoff calculator. Enter all the data, and the amount of money you think you can pay extra every month, and calculate the savings. If you choose to pre-pay your loan through a bi-weekly plan, do it through the bank that is servicing your loan, not a 3rd party that sent you a marketing flier.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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