Biweekly Payments

I read with amusement Oliver Berliner’s letter in your Nov. 11 edition accusing Robert J. Bruss of “perpetuating myths surrounding biweekly mortgage payments.” Berliner implies that this is a conspiracy among bankers to make money “the old-fashioned way.” It is in fact Berliner who is perpetuating a myth.

Take, for example, a $100,000 loan at 10% amortized over 30 years. The principal and interest payment would be $877.57. A few simple strokes on a calculator show that crediting principal payments twice a month instead of once, saves the borrower about $1.21 in the first month.

This is the month when the principal balance is highest and the savings would be at its peak. Should the loan be held to maturity, it would pay off about one month earlier. That’s not much of a savings.

On the other hand, by just rounding out the payment to $900 each month, the loan would pay off almost four years earlier, saving over $33,000 in interest!

While I don’t always agree with Bruss, it should be quite obvious that the true savings with a biweekly loan is a result of the additional principal payments.

ROBERT DOORNIK