Must You Pay Extra For a Biweekly Mortgage?
March 22, 1999, Revised February 20, 2004, Reviewed October 16, 2007
Lenders will charge to convert a standard monthly payment loan to a biweekly. If the charge is excessive, borrowers can roll their own by making extra payments every month equal to 1/12 of the scheduled payment. If offered a new biweekly loan, borrowers might do better with a shorter term loan carrying a lower rate.
"Can you give me the name of a lender who provides biweekly mortgages without charging extra for them?"
No. If you already have your mortgage, no one is going to do the work of converting it into a biweekly without being compensated. The main compensation may be the earnings on the money you deposit over the two weeks prior to the monthly payment to the lender, which is not an out-of-pocket cost to you. But it is an "opportunity" cost in the sense that you would have had those earnings if you had not elected to convert.
If you have not taken out your mortgage yet, many lenders will make a 30-year biweekly without any extra charge, relative to a standard 30-year loan. But a 30-year biweekly is not really a 30-year loan -- it pays off in about 23 1/2 years. That plus the investment earnings referred to above makes the 30-year biweekly more attractive to lenders than a straight 30-year, which means that borrowers should get a better price on the biweekly -- but they don't.
That's why I advise borrowers who are considering a biweekly to consider a straight 15-year loan, which ordinarily will carry a rate about 3/8% below the rate on a 30. Of course, the borrower must be able to afford the payment on a 15-year, which will be about 22% higher than the equivalent payment on a 30-year biweekly. But the 15-year loan will pay off in 15 years instead of 23 1/2.
If you can't afford the payment on the 15-year, you have another option. You can increase your monthly payment by 1/12, which results in the equivalent of one extra payment a year, the same as with a biweekly. In fact, you will do a little better than with a biweekly, and it costs you nothing. See Can I Do My Own Biweekly?
Lenders will charge to convert a standard monthly payment loan to a biweekly. If the charge is excessive, borrowers can roll their own by making extra payments every month equal to 1/12 of the scheduled payment. If offered a new biweekly loan, borrowers might do better with a shorter term loan carrying a lower rate.
"Can you give me the name of a lender who provides biweekly mortgages without charging extra for them?"
No. If you already have your mortgage, no one is going to do the work of converting it into a biweekly without being compensated. The main compensation may be the earnings on the money you deposit over the two weeks prior to the monthly payment to the lender, which is not an out-of-pocket cost to you. But it is an "opportunity" cost in the sense that you would have had those earnings if you had not elected to convert.
If you have not taken out your mortgage yet, many lenders will make a 30-year biweekly without any extra charge, relative to a standard 30-year loan. But a 30-year biweekly is not really a 30-year loan -- it pays off in about 23 1/2 years. That plus the investment earnings referred to above makes the 30-year biweekly more attractive to lenders than a straight 30-year, which means that borrowers should get a better price on the biweekly -- but they don't.
That's why I advise borrowers who are considering a biweekly to consider a straight 15-year loan, which ordinarily will carry a rate about 3/8% below the rate on a 30. Of course, the borrower must be able to afford the payment on a 15-year, which will be about 22% higher than the equivalent payment on a 30-year biweekly. But the 15-year loan will pay off in 15 years instead of 23 1/2.
If you can't afford the payment on the 15-year, you have another option. You can increase your monthly payment by 1/12, which results in the equivalent of one extra payment a year, the same as with a biweekly. In fact, you will do a little better than with a biweekly, and it costs you nothing. See Can I Do My Own Biweekly?