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Biweekly vs Monthly Mortgage Payments: What You Need to Know

How Biweekly and Monthly Mortgage Payments Work

With a biweekly mortgage, you pay half your monthly payment every two weeks. With a monthly mortgage, you pay the full amount once a month. Which is better for you?

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How Biweekly Payments Work

Biweekly payments split your monthly mortgage payment in half, so instead of paying $1,000 once a month, you pay $500 every two weeks. Since there are 52 weeks in a year, that means you end up making 26 half-payments annually, equaling 13 full monthly payments. The extra payment goes straight to your principal, reducing your interest charges and paying off your mortgage faster.

Pros of Biweekly Payment

You pay off your mortgage up to 15 years earlier and save thousands in interest. Payments also seem more affordable since the amounts are smaller.

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Cons of Biweekly Payment

Biweekly payments require stricter budgeting and may not suit irregular income. You have less flexibility if money is tight some months.

How Monthly Payments Work

With a monthly mortgage, you pay the full amount such as $1,000 once a month. This is a more traditional approach that many homeowners prefer for its simplicity and flexibility.

Pros of Monthly Payment

Monthly payments are predictable and budget-friendly. You have more flexibility if your income or expenses change.

Cons of Monthly Payment

You end up paying more interest over the life of the loan and it takes longer to pay off your mortgage. Monthly payments seem more burdensome since the amounts are larger.

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The Potential Benefits of a Biweekly Payment Schedule

Here are a few of the major benefits:

1. Shorter Loan Term

Making half your monthly payment every two weeks effectively adds an extra full payment each year. This means you’ll pay off your 30-year mortgage in around 22-23 years. That’s 7-8 years of interest charges you won’t have to pay.

2. Lower Interest Charges

Paying more frequently means more of each payment goes towards your principal balance. The lower your principal, the less interest accrues. Over the life of the loan, this can add up to major savings.

3. Forced Savings

Splitting your payment in two and paying every other week creates a built-in savings mechanism. You’re paying the same amount, just more frequently, so it may feel like less of a burden. This can help ensure you pay on time each period.

4. Flexible Options

Some lenders offer biweekly payment options with no fees. But if yours doesn’t, you can enroll in a third-party biweekly payment service for a small monthly fee. You can also DIY by sending half your monthly payment to your lender every two weeks. Just be sure to check that there are no prepayment penalties on your loan.

Going with a biweekly mortgage payment schedule is an easy way to save money in the long run while paying off your home faster.

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Things to Consider Before Switching to Biweekly Payments

Here are some important things to consider before making the switch:

1. Higher Monthly Payments

With biweekly payments, you pay half your monthly payment every two weeks. This means you end up making one extra full payment each year, reducing your principal faster and shortening your loan term. However, it also means higher payments – each biweekly payment will be slightly more than half your current monthly payment. Make sure your budget can handle the increase before switching.

2. Potential Penalties

Check with your lender to see if there are any penalties for switching to a biweekly payment schedule. Some lenders charge fees for changes to payment frequency or amounts. It’s best to switch only if you can do so without fees, so you get the maximum benefit.

3. Less Flexibility

It could be challenging to return to a monthly payment schedule after you’ve switched to biweekly payments. Since biweekly payments are automated, you give up some control and flexibility. Before moving forward, confirm that you are aware of the terms and restrictions associated with biweekly payments with your lender.

4. Needs Self-Control

It takes discipline to make biweekly payments on time. It’s easier to forget or postpone a payment because they happen more frequently. To prevent missing or late payments, which can harm your credit and the terms of your loan, set up automated payments.

Switching to biweekly mortgage payments can be a smart way to pay off your home faster and save money. However, make sure you evaluate your own financial situation and understand all the details before making the switch.

READ ALSO: Want to Become a Mortgage Loan Officer? Here’s What You Need to Know

Tips for Managing Biweekly Payments

Here are some tips to help you stay on track:

1. Set up automatic payments

The best way to ensure you never miss a biweekly payment is to set up automatic payments from your bank account. This way, the correct amount will be deducted every two weeks without you having to remember. Just be sure you have enough in your account each time to cover the payment.

2. Create a budget

With higher biweekly payments, it’s important to budget properly for your other expenses. Look at your income and spending over the last few months to see where you can trim costs or look for ways to earn extra money. Make a list of your essential expenses first, then allocate the remaining amount between your biweekly mortgage payments and discretionary spending. Stick to the budget to avoid overspending.

3. Pay extra when you can

If possible, pay a little extra with each biweekly payment. Even an additional $20 or $50 per payment can shave months or years off your mortgage. See if your lender allows you to make principal-only payments in addition to your regular biweekly payments. Over time, the interest savings from extra principal payments really add up.

4. Re-evaluate if needed

If at any point biweekly payments become too difficult to manage, you can switch back to a monthly payment schedule. While you won’t gain the interest savings, it’s better than missing payments or defaulting on your loan. Some lenders charge small fees for switching payment frequencies, so check with your lender first regarding any applicable charges.

Making the switch to biweekly mortgage payments can be highly rewarding if you go in prepared.

READ ALSO: Want to Become a Mortgage Loan Officer? Here’s What You Need to Know

FAQ’S

So you’ve decided to pay off your mortgage biweekly instead of monthly. Here are the most frequently asked questions:

1. Will I have to pay more each month?

With biweekly payments, you pay half of your monthly payment every two weeks. So over the course of a year, you end up making one extra full payment. This extra payment goes directly toward your principal balance, so you pay the loan off faster and save on interest. Your actual payment amount does not increase, you just pay more frequently.

2. Do I have to change the terms of my mortgage?

No, switching to biweekly payments will not change your mortgage terms or interest rate. You will still have the same loan amount, interest rate, and loan term. The only thing that changes is the frequency of your payments.

3. Will biweekly payments save me money?

Absolutely. By making one extra full payment each year, you can shave years off your mortgage and save thousands in interest charges. The earlier you start biweekly payments, the more you stand to save.

4. What if I run into trouble making the payments?

If at any time biweekly payments become difficult, you can easily switch back to a monthly payment schedule. Just contact your mortgage lender and request to change your payment frequency. Going back to monthly payments will not impact your interest rate or loan terms.

5. Are there any downsides to biweekly payments?

The only potential downside is that biweekly payments require more frequent monitoring and action on your part. Instead of one payment per month, you have to make sure two payments are made each month. Some people find this inconvenient. However, for most homeowners the substantial interest savings far outweigh this small hassle.

Conclusion

With the right budgeting and planning, you’ll be mortgage-free ahead of schedule.  Staying consistent and disciplined are key to making the most of biweekly payments. If needed, don’t hesitate to make adjustments to get back on track.

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