Let’s face it, as soon as you buy the house… you’re thinking about how to pay it off. We are always looking for ways to save money on interest and become debt-free faster. Something not talked about enough is setting up bi-weekly mortgage payments instead of the traditional monthly schedule. But is this method the right choice for you?
What Are Bi-Weekly Mortgage Payments?
A bi-weekly mortgage payment plan involves making half of your monthly mortgage payment every two weeks. Since there are 52 weeks in a year, this results in 26 half-payments-equivalent to 13 full payments annually. This extra payment each year can help reduce the loan’s principal balance faster, ultimately shortening the loan term.
Pros of Bi-Weekly Mortgage Payments
Pay Off Your Mortgage Faster
The additional annual payment reduces the principal quickly, which in turn decreases the total interest paid over the life of the loan. Depending on the loan amount and interest rate, a 30-year mortgage could be reduced by several years.
Save Money on Interest
Since extra payments go directly toward the principal, less interest accrues over time. This can lead to significant savings, especially for long-term loans.
Easier Budgeting for Some Homeowners
For those paid bi-weekly, aligning mortgage payments with paychecks can make budgeting easier and prevent the strain of a large monthly payment.
Build Equity Faster
Reducing the principal faster means homeowners build equity more quickly, which can be beneficial for refinancing or selling the home.
Cons of Bi-Weekly Mortgage Payments
Not All Lenders Offer This Option for Free
Some lenders charge fees for setting up bi-weekly payment plans, which may negate some of the financial benefits. It’s essential to check with your mortgage provider before making the switch.
Limited Flexibility
Once you commit to a bi-weekly payment schedule, adjusting payments in case of financial hardship may be more challenging compared to a standard monthly payment plan.
Potential for Processing Issues
Not all lenders apply bi-weekly payments immediately to the principal. Some may hold the first payment until the second half is received, which could limit the overall savings.
Extra Payment Commitment
For some homeowners, making an extra payment per year may not be financially feasible. It’s crucial to ensure that this plan aligns with your budget and long-term financial goals.
Is a Bi-Weekly Payment Plan Right for You?
Bi-weekly mortgage payments can be a great tool for saving on interest and paying off a mortgage faster. However, it’s important to consider your lender’s policies, potential fees, and your own financial situation before making the switch. If a bi-weekly schedule isn’t an option, making one extra lump-sum payment per year can offer similar benefits without the commitment of a structured plan.
Checkout our mortgage calculators to find the best option for you!
