Are biweekly mortgage payments a good idea?
Mortgage payments will be a financially draining obligation for most people. You need to pay your mortgage payments on time to avoid penalties, fees, and even foreclosure.
Each payment you make helps you get that much close to homeownership, which is the end goal of buying a home. Part of the interest is put towards each mortgage payment, and you will also build more home equity with each subsequent payment.
An extra month’s worth of the mortgage is paid off each year when you opt for biweekly mortgage payments over monthly mortgage payments. Here, we will discuss whether or not biweekly mortgage payments are a good idea.
What is a Biweekly Mortgage Payment?
With a biweekly mortgage arrangement, you will be making a payment every two weeks instead of one payment a month. It serves as a quicker way to pay off your mortgage throughout your loan.
For example, if you are currently paying $1,200 a month for your mortgage, that would add up to $14,400 a year. If you were to switch to a biweekly mortgage arrangement, you would be paying $600 every two weeks.
Since certain months of the year are longer than others, you would make additional mortgage payments each year. In other words, you would be paying the yearly equivalent of 13 months, which would translate to $15,600 total instead of $14,400.
Advantages of a Biweekly Schedule
One of the best ways to pay off your mortgage sooner is to switch to a biweekly mortgage. You will be able to build equity in your home faster, which means you can own your home sooner by switching from monthly to biweekly payments.
You may also save thousands of dollars on interest payments over the duration of your loan. Your interest rate is charged on a monthly basis, regardless of whether you are paying biweekly or monthly. That means that your bi-weekly payment plan can reduce your principal much faster before the interest is charged. This can save you tens of thousands of dollars and help you own your home several years sooner than you would over a monthly mortgage.
Imagine being able to own your home 4 or 5 years earlier and saving over $30,000 that would have gone towards your interest payments.
This would happen if you were to take out a loan to buy a $250,000 condo, with a mortgage payment of $1,200 per month. By making 26 payments a year instead of 12, you can reap the financial benefits.
In sum, biweekly mortgage payments will make it easier for you to budget and will allow you to build home equity faster. You’ll pay tens of thousands less on interest and will also be able to drop your private mortgage insurance faster (if applicable).
Perhaps best of all, you will be able to pay off the mortgage early when you switch to biweekly payments.
With a biweekly payment plan, you will be able to take advantage of greater consistency. Your payments will come in on the same day every other week of the month.
Is Making Biweekly Mortgage Payments A Good Idea For You?
If you work for a company that issues biweekly pay, this can help you keep track of your spending and ensure you are making your bi-weekly payments. Bi-weekly mortgage payments can still be right for you if you get paid on a monthly basis, but more prudent accounting of your finances will be required.
If you struggle to keep track of payments, then a bi-weekly mortgage payment schedule may not be right for you. Just like with monthly mortgage payments, you need to make consistent payments and make them on time. Failure to do so could result in fees, penalties and even foreclosure.
How to Set Up a Biweekly Mortgage Payment
You can call your mortgage servicer to discuss the change. Just ensure that you get the agreement in writing. You can also visit their website to make the payments online through their online portal.
You can also do it yourself if you prefer. You can simply send your lender the extra money. However, the money needs to be tagged, so your lender knows it is intended for the principal amount.
Your lender may even have an online payment hub already established for such matters, allowing for the process to be automated.
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