| If paying your mortgage biweekly (every two weeks) | | | | mortgage servicing company revealed they weren't |
| cuts about seven years off your pay back schedule, | | | | equipped to notify borrowers of property tax |
| then paying weekly should cut off 14 years, right? If | | | | increases uploaded to their computers by tax |
| you find a place where that works, let me know and I'll | | | | assessment offices. Their method was to wait for the |
| sign up with you! | | | | next month's payment, slice the $28 off needed to |
| Though there are international variations in the way | | | | supplement the last payment, and carry me forward a |
| mortgages are calculated, most United States home | | | | month behind from then on. They-and other mortgage |
| loans have some common characteristics. Two | | | | companies-are quite rigid about the "no partial |
| notable ones are that interest is computed monthly | | | | payments" thing. |
| (usually at 1/12th of the annual rate) and that the | | | | This is why for a biweekly payment plan to work, |
| interest is charged "in arrears," that is, after it was | | | | either an outside party collects your two week's worth |
| used. Though these can vary among lenders, most | | | | of mortgage principal and interest and holds it for you |
| follow this format. | | | | until they collect the next two weeks' worth, then |
| Therefore, your mortgage interest is the same for the | | | | combines the two half-payments and delivers them to |
| month of March with 31 days as it is for February | | | | your bank; or your bank has a system in place, totally |
| when there are only 28 days. In addition, any payment | | | | at their discretion, for applying your payments. |
| you make this month will not reduce the interest you | | | | Payments are usually still held and applied monthly, but |
| owe next month, because of that "arrears" thing. It has | | | | a rare bank might actually apply the two-week portion |
| already been established you will pay your interest | | | | when it is received. |
| rate times .o8 (1/12th of the rate) times your remaining | | | | The reason the biweekly payment plan works so |
| loan balance. | | | | effectively is that there are 26 two-week periods in a |
| One more basic to keep in mind: most U.S. lenders | | | | year. Fifty-two divided by two equals twenty-six. I |
| want to process your mortgage payment only once a | | | | hope by seeing how a biweekly plan actually |
| month. Biweekly mortgage plans are usually | | | | works-which is a bit different from how most of us |
| implemented by companies external to your lender, | | | | are used to thinking they work-the problems with a |
| and provided as a service to you (you pay a fee for | | | | weekly payment plan become clear. |
| the service) and to the bank (there are fewer | | | | Lenders are not set up to accept payments four times |
| mortgage defaults since the payment is automatically | | | | a month, or 4.2 times a month (the average number of |
| deducted from your bank account). It's a win-win-win. | | | | weeks in a month). You could operate your own |
| Properly implemented, you could pay back a 30-year | | | | weekly payment plan, with your year's payments due |
| fixed-rate loan in about 23 years, depending on loan | | | | divided by 52. You would then set the money aside, |
| specifics, of course. (For $200,000 at 6%, the | | | | not to spend it, until you have collected two (if you are |
| technique eliminates nearly $50,000 of mortgage | | | | also working with a biweekly service company) or |
| interest.) | | | | four, if you are doing this completely on your own. |
| I learned about this "hold for full payment" policy the | | | | Either way, you are squeezing in an extra month's |
| hard way on a remote rental property on which the | | | | payment every year. And the best part about it is-if |
| property taxes were increased. I paid my usual | | | | done correctly-that the 13th lump sum goes to principal |
| payment to the mortgage company. Next thing I knew, | | | | only! |
| I got a 30-day late notice. A phone call to the | | | | |