Dear Dr. Don, If I were to switch from a monthly mortgage payment to a biweekly payment, the new payment also would have to cover taxes, homeowners insurance and private mortgage insurance, or PMI.
My total monthly payment is currently $669.60. If I started in March, I would pay on a Wednesday so the payments would be on March 7 and 21. If there are five weeks like in February, the payments would be on Feb. 1, 15 and 29, correct? So how much would my biweekly payments be? I want to get this worked out before I call my mortgage company to set it up. -- Lisa Lineup
Dear Lisa, I don't recommend that homeowners switch to a biweekly mortgage. It's just not worth the bother or expense. Homeowners think there's some magic to these payments that reduces the interest expense on their loan. That's not it. The magic is in making the equivalent of 13 monthly mortgage payments per year.
You can do as well by making additional principal payments of one-twelfth the monthly mortgage payment each month. Or, if you're paid biweekly, you'll have two "three-paycheck" months every year. Use that money to make the additional principal payments.
Besides the bother and expense, you'll reduce your financial flexibility. You've made it contractual that you'll make these biweekly payments. With additional principal payments, you have the flexibility to skip an additional principal payment if money is tight one month.
While there's no need to make an extra PMI, property tax or property insurance payment each year, the loan servicer may choose, if prevailing law allows, not to adjust the biweekly payments, leaving the additional money to accumulate as a cushion in the escrow account. If you go against my advice and pursue a biweekly mortgage, you'd want to talk to the mortgage company about how these expenses are spread over the 26 biweekly payments.