You may be aware of biweekly mortgage payment plans as an option to regular payment plans if you are a homeowner with a conventional mortgage and make monthly payments on your property.
The way to do this is by paying biweekly mortgage payments versus monthly payments. The reasoning behind this is that making payments more frequently lowers the interest that accrues, which over the course of a 30- or 15-year mortgage, can result in years’ worth of payments being waived from your loan.
Check to see if this reasoning makes sense and will save you money before committing to these biweekly payments.
Spoiler alert: Yes there are potential downsides to biweekly mortgage payments. But before we dive into the specifics, let’s first understand what biweekly mortgage payments are and how they work.
What are biweekly mortgage payments?
In a nutshell, biweekly mortgage payments involve making half your regular monthly mortgage payment every two weeks instead of making one full payment each month. This translates to 26 half-payments per year, effectively adding an extra month’s worth of payment to your annual mortgage contribution.
How do biweekly mortgage payments work?
The concept is simple: by making smaller, more frequent payments, you end up paying off your mortgage faster and potentially saving thousands of dollars in interest over the loan’s life.
Sounds great, right? So, what’s the catch?
Although making biweekly mortgage payments can be an effective way to speed up the payoff of your mortgage and increase your equity more quickly, there are a few possible drawbacks to take into account before making the switch:
1. Fees, glorious fees: Some lenders may charge a setup fee to enroll in their biweekly payment plan. Additionally, there might be per-transaction fees associated with each biweekly payment. While some banks offer this service for free, it’s crucial to check with your mortgage servicer to avoid any unexpected charges.
2. Budgetary constraints: Making biweekly mortgage payments essentially means committing to an extra monthly payment each year. This can put a strain on your budget, especially if your finances are already stretched thin. So, before committing to this type of payment plan, ensure you can comfortably handle the additional financial burden.
3. The binding agreement: Unlike traditional monthly payments, biweekly mortgage payments are a binding agreement. You can’t switch back and forth between monthly and biweekly payments on a whim. So, if you prefer flexibility in your financial commitments, this might not be the ideal option for you.
4. The payment application mystery: Your biweekly payments aren’t applied directly to your mortgage, even though they are taken out of your account twice a month. The payments are held by your mortgage servicer, who applies them as a single, complete monthly payment at the conclusion of each month. In other words, the biweekly payments effectively require an additional payment at the conclusion of each year.
5. The DIY alternative: If you’re hesitant about the commitment and potential fees associated with biweekly mortgage programs, you can always take the DIY approach. Simply set aside the extra money you would have paid biweekly and make an additional lump sum payment towards your mortgage principal each year. This way, you still reap the benefits of faster payoff and reduced interest without the formal program’s constraints.
So, is there a downside to biweekly mortgage payments?
The answer is yes, there are potential downsides, primarily associated with fees, budget constraints, and the binding nature of the agreement. However, these downsides can be mitigated by carefully evaluating your financial situation and exploring alternative approaches like DIY extra payments.
The choice to make biweekly mortgage payments ultimately comes down to your unique situation and financial objectives. A useful strategy for quickening the payoff of your mortgage and increasing equity more quickly is to make biweekly payments, provided that you can afford the associated costs and are comfortable with the commitment. However, the do-it-yourself method might be more appropriate for you if you value flexibility and want to stay away from potential costs.
Remember, there’s no one-size-fits-all solution when it comes to managing your mortgage. The key is to carefully weigh the pros and cons of each option and choose the approach that best aligns with your financial goals and comfort level.
What’s Wrong with Biweekly Mortgage Payments?
There are potentially two problems with going with a lenders biweekly payment program:
- There are often fees attached to this payment plan. That reduces the amount you are saving by quickening the repayment plan.
- You might already have too many contractual payment obligations in your life, similar to the majority of American consumers. Rather than committing to biweekly payments, you might want to maintain some budgetary flexibility unless you have sizable financial reserves.
Recall that you can always receive a tax refund, windfall, or extra payment when you get paid three times a month. You dont have to contractually obligate yourself to do it every month.
How Does the Math Work on Biweekly Mortgage Payments?
The way it operates is as follows: Traditional monthly payments equal 12 payments annually, whereas biweekly payments equal 13.
Your annual extra payment goes toward principal, which over time reduces the loan’s term by six to eight years.
However, is it necessary for you to make biweekly payments in order to accomplish that? If not, you could add the amount of one month’s payment to your monthly mortgage payment by dividing it by twelve.
If youre paying $1,500 per month, divide 1,500 by 12 and make your monthly payment $1,625. To ensure that the additional funds are applied to the principal amount of your loan, speak with your mortgage company first to see if there is anything else you need to do.
Biweekly Mortgage Payments vs. Monthly: Which Gets You Mortgage Free Faster?
FAQ
How much faster do you pay off a mortgage with biweekly payments?
Is biweekly mortgage payments a good idea?
How many years does biweekly payments knock off of a 30 year mortgage?
How many years can you save on your mortgage by paying biweekly?
What happens if you change to biweekly mortgage payments?
When you change to biweekly payments, you’ll make payments every two weeks. If you used to pay $1,200 dollars a month, you’ll pay $600 every two weeks instead. Because some months are longer than others, you’ll end up making an extra mortgage payment each year. That equals 13 monthly payments annually, totaling $15,600.
Should you pay off your mortgage biweekly?
If you make biweekly payments for the life of the loan, once your mortgage is paid off, you’ll have paid a total of $256,288 on the loan, and you’ll pay off your mortgage in 25 years and nine months (cutting 4 years and 3 months of payments off your mortgage). With biweekly payments, you’ll have total interest savings of $18,703. Biweekly Vs.
Should you make biweekly mortgage payments?
When you make biweekly payments, you could save more money on interest and pay your mortgage down faster than you would by making payments once a month. When you decide to make biweekly payments instead of monthly payments, you’re using the yearly calendar to your benefit.
Can a biweekly repayment schedule help you pay off a mortgage?
Paying off your mortgage faster: A biweekly repayment schedule can help you pay off a mortgage early by several years. Paying less in interest over time: Biweekly payments can contribute one extra full payment on your principal balance per year and cut down on accumulating interest.