You Can Pay Off Your Mortgage Faster
As shown in the example above, making biweekly payments can help you pay off your mortgage early even years early, in some cases.
If you have that $250,000 mortgage mentioned above and youre making biweekly mortgage payments, you can actually shave four years and two months off of your loan. Instead of being in debt for 30 years, youll only be in debt for 25 years and 10 months. Imagine what you could do with four mortgage-free years!
The Bottom Line: Are Biweekly Payments Right For You
For the right type of borrower, biweekly payments can help you save on interest and quickly add equity into your home. As with any major financial decision, its important that you weigh the pros and cons of paying your mortgage more frequently.
If you have questions on how you can start biweekly payments through Rocket Mortgage®, you can talk to a Home Loan Expert today for more information.
Is It Always A Good Idea To Switch To A Weekly Or Bi
While a weekly mortgage payment schedule can save you a great deal of money over the long term, there are some situations where it isnt a great idea to switch to a higher frequency payment plan.
Some lenders only apply the borrowers payment to principal at the beginning of the month, so no matter how frequently you make payments, your principal wont be paid any quicker. And other mortgages may penalize you for paying your mortgage more quickly. So, before closing on a mortgage, make sure you understand the conditions that apply to making more frequent payments. And if you already have a mortgage, check with your lender before making weekly or bi-weekly payments, if you have any questions.
If you discover that the terms of your mortgage do not allow for weekly or bi-weekly payments, you may be able to save money by refinancing, and move into a mortgage that allows for extra payments.
But until you can refinance into a new mortgage, you can still save money by depositing your weekly mortgage payment into a bank account. From the account, pay your monthly mortgage and then deposit leftover funds into a savings account. The money in the savings account can then be applied to your mortgage if you refinance, used to payoff your mortgage early, or kept for longer term savings.
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Things To Watch Out For
Making biweekly payments is a handy tool, but be careful of scams or special programs that claim they can do this for you. Some companies offer to convert your monthly mortgage payment into biweekly payments for a one-time fee. Avoid those offers. It shouldnt cost you anything to make extra payments on your loan.
Make sure that making biweekly payments fits your budget. If you’re typically paid once per month, you might be used to paying all of your bills at once instead of spreading them out. If you’re paid weekly, make sure that you’re holding enough cash in reserve each week to make your next biweekly payment once it comes due.
Finally, make sure there isnt a penalty for prepaying your mortgage. Most mortgages these days do not have a prepayment penalty, but there are still some out there that will penalize you for trying to pay off your mortgage early. Just be sure that you wont be doing more harm than good by making extra biweekly payments.
Is Making Biweekly Mortgage Payments A Good Idea
If you are a homeowner with a conventional mortgage who makes monthly payments on your home, you may have heard about biweekly mortgage payment programs as an alternative to traditional payment plans.
The way to do this, according to some lenders, is by paying biweekly mortgage payments versus monthly payments. The conventional logic is that increasing the frequency of the payments doesn’t allow interest to build up and over the course of a 30- or 15-year mortgage that can equal years eliminated from your loan.
Before you sign up for these biweekly payments, it may be wise to examine if this logic is actually true and will save you money.
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Other Ways To Save Money On Your Loan
If you have built up sizeable savings then applying a portion of your savings to your mortgage will permanently lower your interest cost by lowering the principal balance you are charged interest on. If your loan was made during a period of higher mortgage rates, it might also make sense to refinance your loan at a lower rate & perhaps over a shorter duration of time. The following table highlights local rate information.
Avoid Partial Mortgage Payments
- Before you implement a biweekly payment plan
- Make sure the lender will accept partial payments
- Or that any extra payments beyond the total amount due
- Go toward the principal balance
One final note: Be careful not to make a partial mortgage payment to your mortgage lender as it could result in some unintended consequences.
At worst, the mortgage company may send your payment back if its not made in full. This could result in a late fee and a possible credit ding if you dont make the full payment in time.
In other words, making two half mortgage payments a month probably wont go well. But you can always call your lender or loan servicer and ask if you can pay your mortgage every two weeks just to be sure.
For the record, mortgages are generally calculated monthly , so making a half payment early wont result in any additional savings. And 24 half payments is just 12 full payments, so you wont do yourself any favors.
Assuming they do hang onto your partial payment, they may place it in a suspense account, where it will remain until enough money comes along to make at least one full payment.
So if you make another partial or full payment after sending the initial partial payment, theyll only apply the funds if the total is enough to make one full payment.
This is why companies offer biweekly programs to avoid any misunderstanding with your lender if you send in two payments that are supposed to cover your full payment and a surplus toward principal.
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What You Should Look For
In order for the homeowner to build equity in their home at a faster pace, the homeowner must have a lender that will credit half of the monthly payment immediately. If the lender waits until the next payment has been received before crediting it to the loan’s principal, the homeowner will not see the full benefit. Many lenders decide to hold partial payments in an account until the rest of it is received. This is the case in which the homeowner will not benefit from half payments.
Many companies will make the offer to convert a mortgage to a bi-weekly payment plan with a fee. The lender will automatically withdraw the payments from the homeowners bank account every two weeks. It is important to read the small print associated with this. Many of them only pay the lender once every month, so that extra payment doesnt get applied to the loan until the end of the year. In the meantime, the company earns interest on the homeowners money in addition to charging the homeowner a fee that can seem high at times.
The bi-monthly mortgage can be something to watch out for because it is not the same as the bi-weekly mortgage. A bi-monthly mortgage does not have the same results as a bi-weekly one because the homeowner pays half of the monthly mortgage twice instead of every two weeks. This means an extra payment is not made. There is a difference between saving only a single months interest instead of seven years interest.
Lets Look At An Example Of A Do
Loan amount: $200,000Mortgage rate: 4.25% Regular monthly mortgage payment: $983.88 1/12 of that amount: $81.99 New combined payment : $1,065.87
Total savings: $30,205 in interest Mortgage term: 309 months
Be sure that you note the extra amount is to go toward the principal balance!
If you dont make this clear, some lenders will return the surplus money, apply it to your next payment, or perhaps apply it your escrow account. Its important that this is 100% clear so the money goes to the right place.
This free biweekly mortgage method actually works in your favor for several reasons. First, you dont pay any extra junk fees to have someone do it for you.
And second, because you make an extra payment to principal each month, your loan balance is reduced each month and home equity is accrued faster.
This reduces the total amount of interest due throughout the life of the loan. So you pay less interest in a shorter amount of time. Amazing.
Additionally, its easy to execute. Youre still making 12 payments per year, so it doesnt require any extra work like actual biweekly payments.
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Youll Build Equity Faster
One of the biggest benefits of making biweekly mortgage payments is that you build home equity faster.
Equity is the difference between your homes value and what you still owe on your mortgage. It essentially represents how much of your home you actually own . For instance, if your home is worth $250,000 and you still owe $170,000 to your mortgage lender, you have $80,000 in equity.
When you make biweekly payments and manage to squeeze in that extra full payment each year, youll be reducing the balance of your loan even sooner. This will give you a small push toward building equity at a higher rate than scheduled.
The equity in your home is very valuable. Not only does it add to your net worth, but equity ensures that you dont find yourself upside-down if you ever need to sell your home. Without enough equity, you could actually wind up paying out of your own pocket when it comes time to sell your home, after closing costs and commissions are paid out.
Your homes equity is also beneficial if you ever need to take out a home equity loan or home equity line of credit . These loan products can be used to finance home repairs, remodeling projects and more.
Reasons For Paying Your Mortgage Biweekly
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
If youre looking to tackle your mortgage balance faster without feeling the strain of extra payments, paying your mortgage biweekly could help you do just that. Not only can this be a great way to sneak in additional loan payments, but there are also a number of other financial advantages it provides.
Lets discuss what it means to make biweekly mortgage payments and how beneficial this repayment method can be.
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Expect To Pay More Fees
Well, for one thing, there’s the fees. Lenders typically charge an up-front or per-payment fee for setting up a bi-weekly mortgage, and sometimes charge both. These can range from several hundred dollars for the up-front fee and $5-$10 for monthly transaction fees. Over 25 years, that can add up to $1,500-$3,000.
“But so what?” you may say, “That’s still a lot less than $50,000 saved over the life of the mortgage, right?”
Well, right – except that you don’t have to do it that way.
Most 30-year mortgages these days allow you to make additional payments toward the principal without penalty. Meaning that you can simply pay more in those months when you get an extra paycheck, regardless of whether you’re paid weekly or every two weeks.
Can You Save Money With A Bi
A bi-weekly mortgage is often touted as a fairly painless way for a homeowner to pay off their mortgage faster and save tens of thousands of dollars in the process. But is it really such a good idea?
On the surface, it looks like a pretty good deal. Instead of making a monthly mortgage payment, you pay half as much every two weeks. But because there are 52 weeks in a year, there are two months each year where you make three payments instead of two, which is the equivalent of making 13 monthly payments a year.
That extra “monthly payment” each year allows you to pay down your mortgage faster, anyway from four to six years faster than a regular 30-year loan. You also save a bundle on interest, because you’re reducing the loan principal more quickly. Depending on your loan terms, a bi-weekly mortgage could reduce your total interest payments by $50,000-$60,000 over the life of a $200,000 mortgage.
For people who get paid weekly or every two weeks, it can sound particularly appealing, since they can simply take out the same amount from every paycheck for their mortgage payment. What’s not to like?
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Align Your Payments With Your Pay Schedule
As mentioned above, traditional payments have you paying your mortgage once a month, while biweekly payments spread out your payments every 2 weeks. This can come in handy for two reasons:
- If youre paid every 2 weeks, biweekly payments can be smaller and more manageable and can be scheduled on your paydays.
- If youre on a fixed income, you dont have to deal with a large payment due all at once every month.
Because biweekly payments align closely with a typical paycheck schedule, many people find that their mortgage is easier to fit into their overall household budget. Aligning each payment with your payday ensures that youll still have the necessary funds in your account, and it can keep you from spending money that you would later need to pay off a larger, end-of-the-month bill.
No Cost Biweekly Mortgage Payments
- You can do biweekly mortgage payments for free too
- Simply add 1/12th of your regular payment to your total mortgage payment
- Doing so could save you a ton of money on interest
- While also shedding years off your home loan!
Forget that fancy name. I just made it up. Heres how the no cost system works.
Instead of having a biweekly mortgage company handle your monthly payment for a fee, or having to make 26 payments a year.
Simply take your normal monthly mortgage payment, divide it by twelve, and add that amount to your mortgage payment each month.
Then send in your increased monthly payment to the bank or lender. Thats it, youre done.
They should accept the higher payment and put any additional funds toward the outstanding principal balance automatically.
And that will allow you to pay off your mortgage ahead of schedule. The operative word there is should.
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Are Biweekly Mortgage Payments A Good Idea
When you buy a house, you typically make monthly payments for an agreed-upon number of years to pay off the loan. Most commonly, this is based on a 30-year mortgage agreement. But what if you could pay your home off faster and pay less money using biweekly mortgage payments? With this payment schedule, you end up paying down more of your loan each year and saving yourself potentially tens of thousands of dollars in interest. Let’s get into it!
Will You Save Money Paying Your Mortgage Weekly
September 17, 2015 By
If you are a homeowner hoping to save money on your mortgage, you may have considered switching to a weekly or bi-weekly mortgage payment plan as a quick and easy alternative to getting your mortgage refinanced.
While changing your mortgage payment schedule from monthly to more frequent payments has some distinct advantages, will it really help you save money?
Heres a look at some of the ways a weekly or bi-weekly mortgage payment can save you thousands of dollars over the long term, as we also review some of the misconceptions regarding increasing the frequency of your mortgage payment.
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You Dont Need The Biweekly Mortgage Plan
So Clark was right, biweekly mortgage payments arent the best idea, but making extra payments turns out to be a pretty good idea. If you have trouble saving up a large enough amount of money to make a full payment, why not make your own program?
You could set up a new savings account, and figure out how much you need to save every month by dividing your mortgage payment by 12. Then, every month you deposit that amount of money into your savings account. At the end of 12 months you would have enough to make that extra payment. You would also get whatever interest your savings account earns, which wont be much, but will be better than letting your mortgage company hold onto your money for 2 weeks interest free.
About the author: Andy Prescott is a CPA who writes semiweekly articles that are always interesting at artofbeingcheap.com.
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Biweekly Vs Monthly Mortgage Payments
As you can see from the example above, there are a few big differences between biweekly and monthly payments: the number of payments you make, how long it takes to pay off your mortgage and the amount of money you end up paying on the loan.
The number of payments you make each year is the biggest difference because it affects how long and how much youll pay. By making an extra payment every year, bi-weekly payments pay off your mortgage faster than monthly payments, which, in turn, saves you more money.
A monthly payment plan allows for 12 full payments each year . A biweekly plan equates to 13 full payments each year .
Bimonthly mortgage payments could also be an option, but they differ from biweekly payments. Thats because youre making a payment twice per month, which equates to 24 bimonthly payments, or 12 full payments total the same amount of payments as the monthly option.
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