What is a Bi-weekly Mortgage?
A bi-weekly mortgage is a kind of mortgage plan in which the borrower
(“mortgagee”) pays the mortgage loan every two weeks instead of a monthly payment.
The effect is that the mortgage term is reduced as well as the payable interest.
In simple terms, payment of the loan is made within two weeks interval. Since there are 52 weeks in a year, 26 payments will be made. This explanation is the distinction between a bi-weekly mortgage and a bi-monthly or monthly mortgage. A bi-monthly mortgage requires two payments within a month which implies that a total of 24 payments will be made in a year. A monthly payment implies 12 payments will be made per year but the bi-weekly mortgage comprises 26 payments per year. This means that after completing bi-weekly mortgage payments for a year, an extra month has been paid off the mortgage loan.
Bi-weekly mortgage plans are effective for borrowers who have steady cash inflow and want to save off the mortgage interest as well as cut off the duration of the mortgage.
The disadvantage is that many banks or finance companies do not accept small
payments of mortgage loans and preferably hire third-party firms to collect on mortgage loans on their behalf. Thus, third-party companies may only remit payments every month or quarterly. This ultimately negates the merits of a bi-weekly mortgage program.
Also, if a finance company agrees to a bi-weekly mortgage plan, there may be fees
attached to cover for the loss of interest. However, a borrower may still go on to make bi-weekly payments as it is an effective way of discharging the mortgage before the due date.