This is the tenth installment in an ongoing series on mortgage basics. On my mortgage website, I cover a host of topics on my frequently asked questions page. Since this is the most popular page on my site, I thought it might be a nice way to begin my blog. You can find the entire list of FAQs here: Arizona Mortgage Pro FAQs. I will continue this series covering one topic per post.

What are bi-weekly payments and what are the pros and cons of them?

Bi-weekly payments are made every two weeks and are equal to half of your normal monthly payment. Bi-weekly payments are actually a subtle way of paying more to your principal each year, but can be very beneficial. Most people hear that they have to pay 1/2 a monthly mortgage payment every two weeks with bi-weekly and decide that it is really no different than making one monthly payment. The reality is that if you make 26 half mortgage payments a year (52 weeks divided by 2), you are really making 13 payments each year (26 half payments). How much of a difference does this make over the long term? Quite a bit. Let's take an example of a 30 year fixed mortgage for $150,000 at 6%. If you paid the loan off in the usual fashion, you would make 360 payments of about $900 a month. The total that you would have paid over the life of the loan is about $324,000. Now the same loan at the same rate with bi-weekly payments would mean that you pay $450 every two weeks. You would make 638 of these payments (26 per year) and pay off the loan in 24.5 years or so and the total amount you would have paid over the life of the loan is about $287,000. You can now see how powerful bi-weekly payments are. In the example above, the interest savings over the life of the loan were $37,000 and the loan was paid off 5.5 years early.

Bi-weekly payments are commonly accepted by most mortgage companies and banks around the US. You may be able to set up a bi-weekly payment system with your current bank without having to refinance. You may want to set up bi-weekly payments with a new lower rate by refinancing. One word of caution, make sure you can afford bi-weekly payments and that you realize you are paying extra each year. Many people are paid every two weeks, so if you can afford it, it's an easy way to cut down the interest you pay over the life of your mortgage without changing your budget drastically.

Thanks for reading my blog!

John Moran

Senior Loan Officer

3920 S Rural Rd #110 Tempe, AZ 85282

Direct: 480-300-4520

Fax: 602-904-7741

Website: www.azmortgagepro.com

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