Mortgage debt is often considered “good” debt, however that doesn’t mean you shouldn’t pay it off early. Good debt is still debt, therefore improving your personal finances includes knowing how to handle your mortgage debt. If you want to save money over the life of the loan, making bi-weekly payments might be the way to go.
What are bi-weekly payments?
As the name suggests, bi-weekly payments are simply payments that are made every two weeks. Typically, mortgage payments are scheduled once per month, however many people have learned the advantages of taking that one monthly payment, dividing it in half and paying that lesser amount every two weeks.
How does it work?
While at first glance it may seem that you are paying the same amount of money, just in smaller, more frequent installments, there are definitely savings to be had by paying your mortgage with bi-weekly payments. In reality, switching to bi-weekly payments will result in one additional monthly payment being made each year.
12 monthly payments of $1,500= $18,000
26 bi-weekly payments of $750= $19,500
One additional monthly payment applied to your principal balance can save you tens of thousands of dollars over the lifetime of the loan. This will reduce the amount of money you pay in interest and help you pay your mortgage off in less time.
Things to consider.
If you are considering the advantages of bi-weekly mortgage payments you must also consider potential drawbacks to this plan. You must first determine if you lender will accept bi-weekly payments and if they do, how they process those payments. To get the most out of bi-weekly payments the lender must credit the payment immediately upon receipt.
Another question for your lender is whether or not there will be penalties for paying off your mortgage early. Today, most lenders have done away with prepayment penalties, however it is better to be safe than sorry in this situation.
As with all other money matters, it is also necessary to protect yourself from scams and con artists. Anyone or any company that offers services that can help you reduce your mortgage payments or convert your payment plan to a bi-weekly plan should be avoided. Most of these scams involve charging you for this service which of course should be free- why pay for the privilege or paying more money on your own loan?
If after weighing all the pros and cons of bi-weekly mortgage payments you decide this is the right strategy for you, consult your lender for additional details and make sure your bank accounts are set up accordingly if you have automatic payments for your mortgage.