Biweekly mortgages are a type of mortgage that require payments to be made every two weeks rather than monthly. A borrower opts for biweekly mortgage payments will make 26 equal installments over a year.
Paying off the debt faster is accomplished by making 13 complete payments instead of 12 over a year. Interest costs can be reduced considerably during the loan's lifetime by making the additional annual payment. Borrowers should consider the potential drawbacks of biweekly mortgages before committing to one.
Explaining the Biweekly Mortgage Payment Process
By paying biweekly instead of monthly, borrowers can save money throughout the life of the loan. If a borrower's regular mortgage payment is $1,200, the biweekly mortgage equivalent would be two payments of $600 every two weeks.
While making 26 payments of half the average amount will help you pay off your mortgage faster, doing so is not without its pros and cons, especially regarding how your mortgage servicer handles the payments.
Costs and Benefits of Biweekly Mortgage Payments
Borrowers should weigh the pros and downsides of biweekly mortgage payments and verify with their chosen lender if they provide this option.
Some Pros of Biweekly Mortgage Payments
By making an additional payment once a year, borrowers can reduce the length of their mortgage loan. Take a mortgage of $200,000 with a 5% interest rate and a 30-year duration as an illustration.
Compared to a 30-year mortgage with monthly payments, a 25-year biweekly mortgage would result in the debt being paid off five years sooner. The borrower will own the house sooner due to the compounding effect of the extra annual payment. Another major perk is the reduced interest rate from paying your mortgage every two weeks instead of every four.
The total interest for the conventional mortgage in the preceding example is $187,000, whereas the cost for the biweekly mortgage is $151,000. The borrower may save $36,000 in interest by making biweekly mortgage payments instead of monthly ones throughout the loan's lifetime.
Cons of a Biweekly Mortgage Payment Schedule
The benefit of a biweekly mortgage arrangement is partially nullified since some mortgage firms retain the first payment of each month until they receive the second payment. At this point, they transmit both costs to the lender.
That is to say; the loan may not be repaid every two weeks even if payments are made. The borrower could make one additional monthly payment thanks to the biweekly mortgage. Some banks and mortgage providers may charge you more to set up a biweekly mortgage to compensate for the interest you won't be earning.
Monthly Mortgage vs. Biweekly Mortgage
Biweekly mortgage payments are distinct from bimonthly mortgage payments. In a biweekly arrangement, monthly payments are made for 24 expenses each year. Compared to a monthly schedule, biweekly payments are more flexible and need 26 payments. If you want to save money on interest and pay off your loan faster, opting for a biweekly mortgage over a bimonthly mortgage and making 26 payments a year is the way to go.
Making Your Biweekly Mortgage Payments
A responsible borrower can avoid the costs associated with a biweekly mortgage by setting up a payment schedule that is similar to what is required by the lender. The borrower can save on interest by making payments every two weeks and having the mortgage company apply for the money promptly.
Borrowers can save a year's mortgage payments by dividing their annual income by 12. To maximize the benefits of their biweekly mortgage payments, individuals can save up the money they would have otherwise spent and then make an additional payment at the end of the year.
Each monthly payment on a conventional mortgage includes principal and interest. The interest component of the price is more significant at the outset of the loan, but the principle portion grows more prominent as time progresses. Interest has been computed based on a yearly payment cycle of 12 equal installments.
Weekly Installment Payment Plans
Your mortgage servicer likely allows you to pay biweekly instead of monthly payments to the lender, equaling 26 monthly payments or 13 total payments yearly. Any amount paid over and beyond the minimum monthly payment will be applied directly to the loan's principal balance.
When you pay off more of the loan's code, you pay less interest throughout the life of the loan and finish paying it off sooner. Lenders might balk at receiving half-monthly payments in the mail, but they're more likely to agree to biweekly withdrawals from your account. Setting up a biweekly payment plan typically incurs a one-time cost from the lender.
