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Does a Biweekly Mortgage Program Change My Interest Rate

What is biweekly mortgage

becca_morris
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Does a Biweekly Mortgage Program Change My Interest Rate

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  1. Does a Biweekly Mortgage Program Change My Interest Rate?

  2. There is often some confusion about "interest rate" when people look at a biweekly mortgage program. While it's true that a biweekly mortgage actually helps you build up your equity faster by paying down the principal quicker than normal mortgage repayment, it's not true that it reduces the actual interest rate of your mortgage loan.

  3. In essence, there are some people that advertise "biweekly mortgages" and really what we're talking about here is a bi-weekly mortgage program that operates independent of the mortgage itself. Typically these are managed by third party companies, independent from your mortgage lender. Paying the principal down faster actually results in a reduction of the "effective interest rate" on your mortgage.

  4. Note that I said "effective interest rate" and that the actual interest rate of your mortgage is always determined by the original contract between you and the lender. The same contract you signed at the beginning of the origination of your loan. The effective interest rate is in reality - the mathematical or the biweekly mortgage calculator of interest incurred by you over the life of the loan.

  5. For instance on a 30-year fixed loan at $200,000 loan amount with a 7% interest rate, you pay that same loan off in 23.5 years and your effective interest rate would be closer to 5.2%. Remember that the actual note rate of your mortgage remains the same; but since you are paying off the principle faster with your plan the effective rate of interest is reduced. All of this can be discovered through the use of a biweeky mortgage calculator.

  6. In essence, the life of the loan would now be is 23.5 years (instead of the original 30) and since you've paid that loan off sooner and saved over $71,000 in interest payments, you've effectively only paid 5.2% interest rather than the 7% that was originally agreed upon on the original paperwork and contract between you and your lender. The actual note rate doesn't change, but the effective amount of interest you payback on your loan is reduced due to the acceleration of the payments.

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