A Biweekly mortgage is a mortgage loan

Mortgage loan

A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...

 payment plan where the borrower makes payments toward his/her principal

Debt

A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...

 and interest

Interest

Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

every two weeks instead of once monthly. The Biweekly payment is exactly one half of the amount a monthly payment would be. The savings a Biweekly Mortgage payment plan creates are often astounding, though they can be misleading.

A 30-year mortgage of $200,000 at 6.5% will require a monthly payment of $1,264.14. When this mortgage is converted to a Biweekly Mortgage payment plan, the payment will be $632.07 paid every two weeks. Paying the mortgage this way will result in the mortgage being paid off nearly 6 years sooner and it will result in a savings of $58,747.11.

The key to a Biweekly Mortgage plan is that instead of making 12 full payments each year, you make 26 half payments or 13 full payments each year. This is because there are 26 2-week periods each year. Because of this, some months require 3 payments or 1 and one half traditional payments.

Almost all lenders do not offer an actual biweekly payment program and rely on 3rd party processors. This is due to the fact that they would be accepting partial payments from the consumer. This is the reason why lenders rely on 3rd party companies to process their biweekly mortgage programs. Although there are some fees involved, the biweekly programs available for enrollment online can still save you tens of thousands of dollars on a mortgage and shave off years off the loan. Some of the biweekly payment processors do not charge any up-front fees and deduct their fee from the actual savings/extra payment made by following the biweekly pattern.

Some 3rd party processors offer biweekly payments on almost any loan and not limited to a biweekly mortgage alone. A biweekly payment in the automotive world has been becoming increasingly popular.

Criticism

Many real estate experts argue that keeping an existing monthly payment mortgage and making one extra payment each year will result in the same savings as a Biweekly Mortgage payment plan would. They also argue that some mortgage companies charge large amounts of service fees to convert a mortgage to a Biweekly payment plan, and this may constitute an indecorous business practice on behalf of these mortgage companies. Another argument against a Biweekly Mortgage is that the lender and 3rd party processors place the first half of the monthly payment into holding until the second half of the monthly payment is applied. This system allows the bank to minimize profitability losses from the program. The Biweekly Mortgage payment program would be much more real, lucrative, and less misleading if interest and principal was applied to the account on a biweekly basis.