A biweekly mortgage is a mortgage that requires payments every two weeks instead of monthly. If borrowers pay their mortgage every fortnight, they will make 26 installments over a year.
Pay off your debt faster by making 13 total payments over a year instead of 12. Additional annual charges can significantly reduce interest costs over the life of the loan. Borrowers should consider the potential downsides of bi-weekly mortgages before committing to a mortgage.
Explain the biweekly mortgage payment process.
By making payments every two weeks instead of monthly, borrowers save money throughout the life of the loan. If the borrower has a term mortgage of $1,200, a biweekly mortgage is equivalent to making two payments of $600 every two weeks.
While 26 payments of half the average amount can get you out of your mortgage faster, it's with pros and cons, especially in how your mortgage servicer handles payments.
The Costs and Benefits of Biweekly Mortgage Payments
Borrowers should weigh the pros and cons of biweekly mortgage payments and check with their chosen lender to see if they offer this option.
Some Advantages of Biweekly Mortgage Payments
The borrower can shorten the mortgage term by making an extra payment each year. For example, consider a $200,000 mortgage with a 5% interest rate and a period of 30 years.
Biweekly payments on a 25-year mortgage result in debt being paid off five years earlier than on a 30-year mortgage with monthly payments. Due to the compounding effect of the additional annual fees, the borrower will own the home sooner. Another great benefit is lower interest rates when you pay your mortgage every two weeks instead of every four.
The total interest on the traditional mortgage in the example above is $187,000, while the bi-weekly mortgage costs $151,000. Borrowers could save $36,000 in interest by making biweekly mortgage payments instead of monthly payments throughout the loan term.
Disadvantages of Biweekly Mortgage Payment Schedules
The benefits of biweekly mortgage agreements are partially offset by the fact that some mortgage lenders withhold the first payment each month until they receive the second payment. At this point, they pass both of these fees on to the lender.
This means the loan may only be repaid some fortnight, even if payments are made. Borrowers can earn additional monthly fees due to the fortnightly mortgage. Some banks and mortgage lenders may charge you more to set up a bi-weekly mortgage to offset the interest you don't earn.
Monthly vs. Biweekly Mortgages
Biweekly mortgage payments differ from bimonthly mortgage payments—monthly payments for 24 issues per year on a bi-weekly agreement. Biweekly payments are more flexible than monthly payments and require 26 payments. If you want to save on interest and pay off your loan faster, choosing a bi-weekly mortgage instead of a bi-monthly mortgage and making 26 annual payments is the way to go.
Pay your biweekly mortgage.
Responsible borrowers can avoid the fees associated with bi-weekly mortgages by creating a payment schedule similar to what lenders require. Borrowers can save on interest by making biweekly payments and letting mortgage lenders claim the money promptly.
Borrowers can save a year's mortgage payments by dividing their annual income by 12. To maximize the benefits of biweekly mortgage payments, individuals can save money they would have spent and then make additional payments at the end of the year.
Each monthly payment on a traditional mortgage consists of principal and interest. The exciting part of the price is more important at the beginning of the loan, but over time the central portion becomes more critical. Interest is calculated over an annual payment cycle of 12 equal installments.
Weekly installment plan
Your mortgage servicer may allow you to make biweekly payments to your lender instead of monthly payments, equating to 26 costs per month or 13 fees per year. Any amount in excess of the minimum monthly payment is charged directly to the loan's principal balance.
If you pay off most of the loan amount, you pay less interest over the life of the loan and can pay it off sooner. Lenders may be reluctant to receive semi-monthly payments in the mail but are more likely to agree to withdraw money from your account every two weeks. Setting up a bi-weekly payment plan usually involves a one-time cost to the lender.
