Whenever I do a mortgage for a client buying a new house, I discuss their options in detail with them. This includes various mortgage programs, such as FHA, conventional, VA, etc.; mortgage terms, such as 15 year fixed, 30 year fixed, 10 year fixed, etc.; and what types of mortgage are available, such as option ARMs, Fixed, etc. And while that information is enough to decide on which mortgage makes the most sense, it is not always the whole picture. And the reason I say this is because your method of repayment can be just as important as any of the other components of your mortgage.

And what I mean by this is whether you make monthly or biweekly payments. Every mortgage payment is due on the first of the month. But you can make half of a payment every two weeks. For most people, this means that they make half of their payment out of every paycheck, which is usually convenient. It also means you prepay a little interest every month and you make an extra full payment every year. This can lead to substantial cost savings over the life of the mortgage, and may make a longer term mortgage easier to swallow.

For instance, on a $400,000 mortgage at 4.25% your Principal and Interest payment would be $1,967.76. This means your biweekly payment would be $983.88 (half of the total payment). If this came out of your paycheck every two weeks, you would pay $52,218.81 less in interest over 30 years, and finish your payments in the 25^th year, saving you five years of payments.

This cost savings could have a dramatic impact upon how you want to structure your mortgage, and can lead to you changing something. For instance, many clients will opt for a 30 year payment with biweekly payments over a 20 year, so that the monthly payments are lower if someone loses a job or some other financial hardship comes up. 25 years is often far more palatable than 30, and with a few additional extra payments, that 25 years can easily become 20.

If you have any questions about biweekly payments or about getting a mortgage, please contact me. If you have anything to add about the cost savings of biweekly mortgage payments, please leave a comment.