A bi-weekly mortgage is a mortgage payment plan where payments are made every two weeks, as opposed to the more traditional monthly payment plan. Making mortgage payments every two weeks, as opposed to monthly, will result in the equivalent of one additional monthly payment being made each year.
This extra payment is applied toward the principal balance of the mortgage, and will lead to substantial interest savings over the life of a long-term mortgage.
When a bi-weekly payment plan is set up, most mortgage servicing companies simply hold the first half of the monthly payment until the second half arrives and then make the full monthly payment. If a simple interest bi-weekly mortgage plan can be set up, each payment received is immediately applied toward the principal balance of the mortgage leading to additional interest savings.
Converting an existing mortgage to a bi-weekly plan usually carries some fees. A self-disciplined borrower can gain the same benefits of a bi-weekly plan by making one additional mortgage payment each year, or by paying an extra amount each month equal to 1/12 of the scheduled monthly payment.
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