Does It Improve Credit Rating?
Does It Reduce the Interest?
How Does the Math Work?
What's the Downside?
Is Making Biweekly Mortgage Payments an Excellent Idea?
Suzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and assists develop content strategies.
If you are a house owner with a conventional mortgage who makes regular monthly payments on your home, you might have become aware of biweekly mortgage payments as an option to plans. The logic is that increasing the frequency of the payments reduces the interest that builds up and, throughout a 30- or 15-year mortgage, that can equal years of payments eliminated from your loan. However, biweekly mortgage payment programs generally carry additional fees and need agreeing to a larger payment quantity.
Before you register for biweekly payments, it 'd be smart to weigh the benefits and disadvantages of this kind of program to figure out whether it will in fact save you any money.
- Some biweekly payment programs used by lenders are not the very best monetary option for the homeowner.
- Committing to biweekly mortgage payments can be challenging on a tight spending plan.
- Biweekly mortgage payments won't necessarily enhance your credit rating.
- Making extra payments towards the principal of your mortgage is a method to lower your interest payments over the life of the loan. You don't require a formal contract to do this.
- In any case, ensure your mortgage does not come with an early prepayment penalty. That will harm any method for settling the loan early.
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Will Switching to Biweekly Payments Boost My Credit Score?
Using a biweekly payment schedule set up by your mortgage lender puts you on an automatic withdrawal plan that ensures that your payments are made on time.
If you're the kind of person who misses payments from time to time because you forgot to write the check, an automated payment schedule will enhance your credit because your payments will be on time. However, you can get the same advantage with an automated monthly payment.
Will Biweekly Payments Reduce the Interest I Pay?
The idea that biweekly payments will reduce your interest payments may be a myth. Why? Because, depending on the details of your loan, there is a great chance that the company getting your mortgage payment isn't the company that holds the loan.
Although you're paying twice per month, the servicer receiving your payment isn't making biweekly payments to the company that owns your loan. It's most likely that they're likely holding the payment in an account till the end of the month.
But will you still be decreasing the interest that is developing up over time? Yes. Keep in mind that each calendar year has 52 weeks. If monthly has 4 weeks that equals 48 weeks. So, biweekly payments don't include two payments each month however rather amount to 26 half payments-the equivalent of 13 monthly payments in a year.
Some mortgage business do not accept biweekly payments on mortgages, so you ought to ask ahead of time before registering for a biweekly payment strategy through a third-party loan provider.
How Does the Math Work on Biweekly Mortgage Payments?
It works like this: Biweekly payments amount to 13 monthly payments in a year, while traditional monthly payments are equal to 12 payments each year.
By paying an extra month every year, you're paying extra principal, which shaves six to eight 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 total up to your monthly mortgage payment.
If you're paying $1,500 each month, divide 1,500 by 12 and make your regular monthly payment $1,625. Speak to your mortgage company first to make sure there isn't something more you need to do to ensure the additional money is applied to the principal amount of your loan.
What's Wrong with Biweekly Mortgage Payments?
There are possibly 2 issues with opting for a loan provider's biweekly payment program:
- There are often charges connected to this payment strategy. That consumes into the quantity you're conserving by accelerating your repayment schedule.
- You may, like the majority of American customers, currently have enough contractual payment commitments in your life. Unless you have significant monetary reserves, you may wish to keep some flexibility in your budget plan rather than dedicating to biweekly payments.
Remember, you can always make an extra payment when you get 3 incomes in a month, receive a tax refund, or come into a windfall. You do not need to contractually obligate yourself to do it every month.
Why Are Biweekly Mortgage Payments a Good Idea?
There are a number of benefits to biweekly mortgage payments. They include:
- Paying off your mortgage much faster, and paying less interest over the life of the loan.
- Building equity in your house quicker.
What Are the Downsides of Biweekly Mortgage Payments?
Signing an official contract to make biweekly mortgage payments has a number of possible disadvantages:
- There are often costs involved and they will consume into the quantity you're conserving by increasing your annual mortgage payment.
- You're locking yourself into a dedication to pay a larger quantity every year. If your budget plan takes a hit from another direction, you might be sorry for that.
What Are Other Ways I Can Pay Down My Mortgage Faster and Cheaper?
You can settle your mortgage earlier and reduce your interest costs without committing to a biweekly mortgage payment. For example, you can use a benefit or an unanticipated windfall to pay off a piece of your mortgage. If you get a tax refund, put the money against your mortgage.
Whatever you do, make certain that you call your mortgage holder in advance and ensure that your extra payment will be applied versus the principal of your mortgage loan.
There are methods to pay down a mortgage without signing up for a strategy that may come with charges connected. The benefits may not outweigh the gains of a biweekly mortgage.
