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Pros and Cons of a Bi-Weekly Mortgage Program

By
Mortgage and Lending

When a borrower enters into a contract to make bi-weekly payments on their mortgage, the amortization schedule is accelerated. For example, with a 30-year amortization schedule, the borrower makes 12 payments per year. In a bi-weekly arrangement, the borrower makes 26 'half' payments, which allows the loan to be paid off in 22.8 years instead of 30 years. It's the same as making 13 monthly payments.

This ultimately saves the borrower thousands of dollars in interest rate fees. However, bear in mind that bi-weekly programs usually have some type of setup, transaction, and maintenance fees associated with them. A custodian manages the bi-weekly payments in a trust account (and also makes a profit on the interest accrued there). Because the lender really doesn't accept partial payments, this middle man is still making monthly payments to the lender on some type of pre-payment schedule.

It is important for the consumer to know that the same results can be achieved without hiring an outside company to do this. As long as your loan program carries no pre-payment penalty, pre-payments can be made on a monthly or annual basis to shorten the loan term to save money on interest or remove PMI charges on loans that have less than a 20% down payment. The borrower simply needs to indicate the extra payment is being made toward the principal balance, and have the discipline to make these extra payments as scheduled.

Mortgage Interest Rates*
Rates as of Friday, 16th January, 2009:
  Conforming APR Payment per
$1,000
Jumbo APR Payment per
$1,000
30-Yr. fixed 5.125% 5.257% $5.44 5.625% 5.716% $5.76
15-Yr. fixed 4.875% 5.101% $7.84 5.000% 5.151% $7.91
7-Yr. fixed ARM 5.375% 5.509% $5.60 5.500% 5.590% $5.68
5-Yr. fixed ARM 5.000% 5.131% $5.37 5.250% 5.339% $5.52
3-Yr. fixed ARM 4.750% 4.879% $5.22 5.250% 5.339% $5.52
5-Yr. Interest Only 5.250% 5.383% $4.38 5.500% 5.590% $4.58
*Rates are subject to change due to market fluctuations and borrower's eligibility.
Superior Home Mortgage Corp. licensed in DE, FL, GA: Georgia Residential Mortgage Licensee #14511, MD, MI, NY: Licensed Mortgage Banker - NY State Banking Department, NC, PA, SC, VA: Virginia State Corporation Commission License # MLB-566, & DC. Superior Mortgage Corp. licensed in CT, MA: Mortgage Lender License # MC3208, NJ: Licensed Mortgage Banker - NJ Department of Banking, RI: Rhode Island Licensed Lender & Broker, & TN. SHM Mortgage Licensed by the New Hampshire Banking Department

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