Is Making Biweekly Mortgage Payments a Good Idea?
Does It Improve Credit Report?
Does It Reduce the Interest?
How Does the Math Work?
What's the Downside?
Is Making Biweekly Mortgage Payments a Good Idea?
Suzanne is a content marketer, author, and fact-checker. She holds a Bachelor's degree in Finance degree from Bridgewater State University and helps establish content strategies.
If you are a homeowner with a standard mortgage who makes regular monthly payments on your home, you might have found out about biweekly mortgage payments as an option to conventional payment strategies. The logic is that increasing the frequency of the payments decreases the interest that develops and, over the course of a 30- or 15-year mortgage, that can equate to years of payments eliminated from your loan. However, biweekly mortgage payment programs normally carry extra charges and need accepting a larger payment amount.
Before you sign up for biweekly payments, it 'd be sensible to weigh the advantages and drawbacks of this type of program to identify whether it will really conserve you any cash.
- Some biweekly payment programs used by lenders are not the very best monetary choice for the house owner. - Committing to biweekly mortgage payments can be tough on a tight budget plan. - Biweekly mortgage payments will not necessarily enhance your credit report. - Making extra payments towards the principal of your mortgage is a way to reduce your interest payments over the life of the loan. You don't need a formal arrangement to do this. - In any case, make certain your mortgage doesn't an early prepayment charge. That will damage any method for paying off the loan early.
milan2099/ Getty Images
Will Switching to Biweekly Payments Boost My Credit Score?
Using a biweekly payment schedule established by your mortgage lender puts you on an automated withdrawal plan that guarantees that your payments are made on time.
If you're the type of person who misses out on payments from time to time because you forgot to write the check, an automatic payment schedule will improve your credit because your payments will be on time. However, you can get the exact same benefit with an automatic monthly payment.
Will Biweekly Payments Reduce the Interest I Pay?
The idea that biweekly payments will lower your interest payments may be a misconception. Why? Because, depending on the details of your loan, there is a likelihood that the business getting your mortgage payment isn't the business that holds the loan.
Although you're paying twice monthly, the servicer receiving your payment isn't making biweekly payments to the company that owns your loan. It's more most likely that they're most likely holding the payment in an account up until the end of the month.
But will you still be lowering the interest that is developing in time? Yes. Remember that each calendar year has 52 weeks. If every month has 4 weeks that equates to 48 weeks. So, biweekly payments don't include two payments every month however rather include up to 26 half payments-the equivalent of 13 regular monthly payments in a year.
Some mortgage companies do not accept biweekly payments on mortgages, so you ought to ask ahead of time before registering for a biweekly payment plan through a third-party loan provider.
How Does the Math Deal With Biweekly Mortgage Payments?
It works like this: Biweekly payments are equal to 13 month-to-month payments in a year, while conventional month-to-month payments are equal to 12 payments each year.
By paying an extra month every year, you're paying additional principal, which shaves six to 8 years off the life of the loan gradually.
But do you have to make biweekly payments to do that? Instead, you could divide the overall of one month's payment by 12 and add that amount to your monthly mortgage payment.
If you're paying $1,500 each month, divide 1,500 by 12 and make your month-to-month payment $1,625. Talk to your mortgage business initially to ensure there isn't something more you have to do to make sure the additional money is used to the primary quantity of your loan.
What's Wrong with Biweekly Mortgage Payments?
There are potentially 2 issues with going with a lending institution's biweekly payment program:
- There are typically fees connected to this payment strategy. That consumes into the amount you're saving by accelerating your repayment schedule.
- You may, like most American customers, currently have adequate legal payment obligations in your life. Unless you have significant financial reserves, you may want to keep some flexibility in your budget plan rather than committing to biweekly payments.
Remember, you can constantly make an additional payment when you get 3 incomes in a month, get a tax refund, or enter a windfall. You don't have to contractually obligate yourself to do it every month.
Why Are Biweekly Mortgage Payments an Excellent Idea?
There are a couple of benefits to biweekly mortgage payments. They include:
- Paying off your mortgage faster, and paying less interest over the life of the loan.
- Building equity in your house faster.
What Are the Downsides of Biweekly Mortgage Payments?
Signing an official agreement to make biweekly mortgage payments has a couple of prospective disadvantages:
- There are typically fees involved and they will eat into the quantity you're saving by increasing your annual mortgage payment.
- You're locking yourself into a dedication to pay a bigger amount every year. If your budget takes a hit from another instructions, you could be sorry for that.
What Are Other Ways I Can Pay Down My Mortgage Faster and Cheaper?
You can settle your mortgage earlier and decrease your interest costs without dedicating to a biweekly mortgage payment. For instance, you can utilize a bonus or an unanticipated windfall to pay off a portion of your mortgage. If you get a tax refund, put the money versus your mortgage.
Whatever you do, make certain that you contact your mortgage holder ahead of time and make sure that your additional payment will be applied against the principal of your mortgage loan.
There are methods to pay down a mortgage without signing up for a strategy that might include fees connected. The advantages may not exceed the gains of a biweekly mortgage.