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Hello, my fellow homebuyers! Have you heard about biweekly mortgage payments? Are you looking to pay off your mortgage faster and save a ton of money on interest? However, let’s examine how it functions in more detail and determine whether joining the bandwagon is the right decision for you before you do.
What’s the deal with biweekly payments?
Instead of making one big payment every month, you split it in half and make two smaller payments every two weeks. This might sound like a small change, but it can make a big difference in the long run.
Here’s the lowdown:
- More frequent payments: By making 26 half-payments a year, you’re essentially making 13 full payments instead of 12. This means you’re chipping away at your mortgage balance more often, which can lead to significant savings.
- Faster payoff: The extra payments go directly towards your principal, the actual loan amount you borrowed. This means you’ll pay off your mortgage faster, potentially years earlier than planned.
- Lower interest costs: The less time your loan is outstanding, the less interest you’ll pay overall. This can translate to thousands of dollars saved over the life of your mortgage.
So, is biweekly the way to go?
Well, it depends. Here are some things to consider:
- Your financial situation: Can you afford to make the extra payments every two weeks? Make sure you’re not sacrificing other financial goals, like building an emergency fund or paying off high-interest debt.
- Your mortgage terms: Check if your lender allows biweekly payments and if there are any prepayment penalties. Some lenders might charge a fee for setting up or maintaining a biweekly payment plan.
- Your goals: Are you planning to stay in your home for the long haul? If so, biweekly payments can help you build equity faster and save on interest. But if you plan to sell your home sooner, the benefits might not be as significant.
Alternatives to biweekly payments:
- Round up your monthly payments: Instead of paying the exact amount, round it up to the nearest hundred or thousand and make that extra payment.
- Make lump-sum payments: Use bonuses, commissions, or tax refunds to make extra payments towards your principal.
- Increase your monthly payment: If you can afford it, increase your regular monthly payment by a small amount. Every little bit helps!
The bottom line:
Making biweekly mortgage payments can help you save money and accelerate the payoff of your mortgage. However, you should carefully consider the advantages and disadvantages and make sure that it fits your goals and financial situation.
Remember, there’s no one-size-fits-all answer. Speak with your lender and run the numbers to see how much you can save before making a decision.
And hey, if you’re still not sure, feel free to hit me up in the comments. I’m always happy to help!
Peace out!
Cons of paying your mortgage biweekly
- Possible effects on other savings objectives: Before deciding to pay your mortgage every two weeks, think about how it would fit into your overall budget. A biweekly approach entails increasing your annual mortgage payment, which may require you to take money out of other financial commitments like retirement savings. Additionally, it might be wiser to prioritize paying off your credit card debt with a higher annual percentage rate if you’re attempting to pay off high-interest debt. Check your budget to see if the savings offset any losses in other areas.
- Potential prepayment penalty: Prepayment penalties are not common, but they can apply to mortgages if a borrower pays off the loan earlier than the repayment plan specifies. To find out if you would be charged this fee, carefully review your loan documents or get in touch with your servicer. (Record who you spoke with in case there is a problem later.) ).
- Might need additional setup: Setting up biweekly payments might not be that easy because lenders want to collect their cut of the interest. Make sure your additional payment will go toward the principal by contacting your servicer to arrange your payment plan before making the extra payments. Once more, record the names of the people you spoke with and obtain written confirmation of the discussion.
Pros and cons of biweekly mortgage payments
- Long-term savings: The capacity to make significant interest savings is the primary benefit of biweekly mortgage payments. In the first ten years, the above example would save you over $31,000 in interest.
- Faster route to equity: Biweekly payments will accelerate your equity accumulation whether you intend to sell the house before the loan term expires or remain in it forever. If you stay, you’ll pay off the loan sooner. Additionally, that equity provides you with a less expensive borrowing option in the form of a home equity loan or line of credit if you’re still living there.
- Increased net proceeds: If the house sells for more money than you originally paid for it, you will keep more of the proceeds rather than using them to settle your mortgage.
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 it better to pay extra on mortgage monthly or biweekly?
Is biweekly or monthly payments better?
How many years can you save on your mortgage by paying biweekly?
Is a biweekly mortgage the same as a monthly mortgage?
With a bimonthly mortgage, you’d make payments twice a month (usually on the 1st and the 15th). They might seem the same, but there’s a difference. To illustrate, let’s do some simple math. There are 52 weeks and 12 months in a year. If you make a payment every two weeks—a biweekly mortgage—divide 52 by 2. This equals 26 payments a year.
Should you pay a mortgage biweekly?
This adds up to one additional payment a year, which can significantly cut down on the interest you pay over the life of the loan. “Biweekly payments also might match up better with your paycheck so that you can more easily match payments to your budgeting process,” Sprague Gerber says.
When does a biweekly mortgage pay off?
But if the borrower rounds off the payment to $500, payoff occurs after 659 payments, or 30.5 months early. A biweekly mortgage is one on which the borrower makes a payment equal to half the fully amortizing monthly payment every two weeks.
What is a biweekly mortgage payment schedule?
On a biweekly schedule, you’ll have two calendar months in which you end up making three payments. For the rest of the time, you’ll make only two payments per month. For example, if you have a 30-year loan with $1,450 monthly mortgage payments, you’ll pay $17,400 per year toward your mortgage.