Finance Space

You can arrange biweekly payments and save interest.

There is one universal goal that my clients share: They want to retire without a mortgage.

As retirement creeps closer, many of them start adding extra payments or prepaying additional principal in order to retire free of that monthly mortgage payment. Alternatively, you can start paying off your mortgage early by signing up for a biweekly mortgage payment plan.

Biweekly mortgage payment plans make it much simpler to pay off your mortgage early. The process is painless and automatic. Instead of paying one mortgage payment each month, you split your monthly amount in half and pay half of your mortgage every two weeks. Subsequently, you end up making payments every other week for 26 payments a year, which is equal to making 13 monthly mortgage payments in a year. Therefore, you build equity faster, reduce the cost of interest and typically pay off your mortgage in 23 to 24 years rather than 30 years.

For example, if you had a $200,000 conventional 30-year, fixed-rate mortgage (with an 80 percent loan-to-value) at 6 percent (the APR would be 6.09 percent) your monthly mortgage payment would be $1,199.10. Over the life of the loan you would make 360 monthly mortgage payments consisting of principal and interest totaling $1,199.10, which would be $231,677 in interest payments over the life of the loan. Conversely, if you had a $200,000 biweekly mortgage (with an 80 percent loan-to-value) at 6 percent (the APR would be 6.01 percent) every two weeks, your mortgage payment consisting of principal and interest would be $599.55. Over the life of the loan, you would make 636 biweekly mortgage payments of $599.55; which would be $180,722 in interest over the life of the loan. In this example by using a biweekly mortgage instead of a conventional 30-year mortgage, you save $50,955 in interest payments and pay off your mortgage in just over 24 years.

Since sending bills every two weeks and writing checks every two weeks would be cumbersome, biweekly mortgage payments are automatically deducted from your designated checking or savings account. Making smaller mortgage payments more often allows clients to easily plan and control their cash flow and at the same time, pay down their principal quicker.

You can either sign up for the biweekly mortgage option when you apply for your loan or if you currently have a mortgage, you can ask your financial institution how to change your payment option to biweekly

(There is usually a charge for changing payment options once the loan has been established.)

Laura Medigovich is a financial planner and assistant vice president for M&T Bank’s Hudson Valley region. Her column appears Wednesdays.

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Tags: Mortgage, Personal Finance