What are Bi-Weekly Mortgage Payments?
A mortgage option known as a biweekly mortgage enables the borrower to make payments every two weeks as opposed to once each month. With a biweekly mortgage, the borrower makes 26 half payments every two weeks. This significantly accelerates the loan’s payback by making 13 complete payments over 12 months.
The additional annual payment can result in significant interest cost savings for the loan. However, since these payment schedules might have significant drawbacks, borrowers should think carefully before agreeing to a biweekly mortgage.
Is there a downside to biweekly mortgage payments?
Biweekly mortgage payments have one downside in that certain lenders may charge a fee to sign up for their biweekly payment plan. You should do the math when it comes to fees to be sure paying biweekly won’t put you in the red.
Another thing to keep in mind is that making payments every two weeks won’t improve your credit score. The credit bureaus employ 30-day time frames for analyzing credit data to establish ratings, but they won’t harm your score. Therefore, whether you pay monthly or biweekly, your credit rating won’t change.
How much faster will I pay off my mortgage with Biweekly payments?
By making half of your regular monthly payment every two weeks, biweekly payments accelerate the repayment of your mortgage. You will have paid the equivalent of 13 rather than 12 monthly installments by the end of each year. This easy method can shorten the length of your mortgage by several years and reduce your interest costs by thousands of dollars.
How many years does paying a mortgage bi-weekly save?
Over the course of the loan, the homeowner’s mortgage payment method can result in significant financial savings. Bi-weekly mortgage payments can save tens of thousands of dollars and enable the homeowner to pay off the mortgage nearly seven years earlier with savings of 23% to 30% of total interest charges.
One extra mortgage payment is made yearly under the bi-weekly mortgage arrangement. As a result of the additional payment, the principal on the loan is decreased. The amount of interest charged for the loan is also decreased since the homeowner is paying off the loan balance more quickly.
Is it better to make weekly or Biweekly mortgage payments?
Making payments twice a week could result in greater interest savings and a quicker payoff of your mortgage than paying it off once a month.
By opting for biweekly payments rather than monthly payments, you are taking advantage of the year long calendar. You will make 26 payments each year as opposed to 12 if you make payments every two weeks. With this strategy, you pay an extra month per year even if each payment is equivalent to half of the monthly sum.
For instance, if your entire monthly mortgage payment is $1,200, you are already paying $14,400 in monthly mortgage payments per year.
If you switch to biweekly payments, you will now pay every two weeks. If you were paying $1,200 per month, you will now pay $600 every two weeks. As a result of certain months being longer than others, you’ll wind up adding a mortgage payment to your annual mortgage payment. That equates to an annual payment of $15,600, or 13 monthly installments.
You can pay down your principal more quickly than you would with the monthly payment method if you make an additional payment each year. Since the payments will be spread out over the entire year, even though you will be making an extra payment, you probably won’t notice a negative financial impact. Even while one extra payment a year might not seem like a difference, when you take the entire mortgage loan term into account, it adds up.
Which is better: Biweekly or semi-monthly mortgage payments?
Semi-monthly payments– Typically, semi-monthly refers to two payments per month. Many people continue to use the customary 1st and 15th, but if other dates make more financial sense for you, you are free to do so. Each year, twenty-four payments are made which is not an extra payment.
Biweekly payments- Every two weeks, accelerated bi-weekly payments are made. The main distinction is that biweekly payments are made 26 times a year, which is equivalent to an additional monthly payment or two additional semi-monthly payments. The additional payments are applied straight to your principal, saving you interest and cutting the length of your mortgage’s amortization.
Therefore, biweekly payments are better than semi-monthly payments.
What are the Pros and Cons of Biweekly Mortgage Payments?
Before determining whether to commit to biweekly mortgage payments, consider all the options. Let’s weigh the benefits and drawbacks of signing a monthly mortgage plan.
- Pay off your mortgage faster
- Build equity
- It’s easier to budget
- You may save on interest
- There may be a set-up fee
- Requires you to pay more over the year
- It’s a permanent agreement
- Your payment isn’t applied as you pay
For more information contact the the Cain Mortgage Team Today.