There are pros and cons of biweekly mortgage payments to consider before making payment plans. So, if you’ve been asking yourself about monthly or biweekly mortgage payments, you’re a responsible buyer or homeowner!
Whether you plan to buy a home or currently own one, finding the best mortgage payment plan is essential for your financial future. When you buy a house with a real estate agent, you’ll also work with a lender if you need financing. If you’re one of the many buyers that acquire a home through a mortgage, then you should be aware of the different payment options available to you. If you already have a mortgage, then it’s never too late to speak with your lender about more advantageous payment plans.
The standard mortgage payment occurs once a month and includes your mortgage interest, property taxes, principal, and mortgage insurance (if applicable). Smart homeowners understand that paying off more of the principal, or the money you agreed to pay back, will shave a few years off the loan.
If you split your payment into installments that you pay every two weeks, you can shorten the length of your mortgage. However, there are also some considerations to note before you pursue this path.
What are the pros and cons of biweekly mortgage payments, and how can you lock in the best payment plan for your finances?
Definition of a Biweekly Mortgage Payment
A biweekly mortgage payment is essentially a payment plan in which you pay your mortgage twice a month or every two weeks. Payments are exactly half of the monthly payment. For example, if your mortgage is $1,500, then a biweekly mortgage payment would be paying $750 for the first of the month and another $750 on the 15th.
This totals 26 smaller payments paid per year, resulting in the equivalent of 13 monthly payments. Since any payment beyond the 12-month requirement goes entirely to the balance, the two extra “13th-month” payments that are scheduled go straight toward the loan amount – not interest. This method allows you to pay off more principal and therefore take a few years off your mortgage payments.
Facts About Biweekly Mortgage Payments
Are you curious about how you can get the benefits of a biweekly mortgage payment plan? Many homeowners have gone this route to accelerate their pay-off timeline, and it may be right for you too. Here are some facts that can help you decide which method you can use to get them.
It’s a fast track to paying off even more principal
The first five years of a home loan’s mortgage payments mainly go toward interest. This can be frustrating to a homeowner who wants to tap into equity more quickly. Biweekly payments allow homeowners to pay down more of the balance and enter the payment phase, where more of the mortgage goes toward the balance, which happens sooner when you chip away at the principal.
Biweekly mortgages can be set up by your lender or be “DIY”
Both methods offer advantages and drawbacks that would motivate homeowners to choose different routes. However, they aren’t too different from each other. Your choice is more of a matter of convenience and personal preference.
- Lender-managed route: If you set up the payments with your lender, it creates two convenient smaller payments, which is excellent for people with bi-weekly paychecks or dual-income families. However, the bank doesn’t apply the extra 13th payment until the end of the year. So, you get more affordable payments throughout the year but then must prepare to pay extra at the end of the year.
- DIY route: You can self-manage your biweekly payment by adding 1/12 of the monthly payment on top of the regular monthly payment to create the same principal pay-off benefit of a biweekly schedule. Simply divide your mortgage by 12 and add that amount to your monthly payment. For example, 1,500/12= $125. Therefore, a $1,500 mortgage becomes $1,625. You still need to pay the mortgage monthly, but you gain the benefits of a shorter loan and extra principal pay-off.
- Enrolling in a lender’s bi-weekly mortgage payment plan may involve fees. Therefore, if you want to enter this type of agreement, it’s important to see the costs and whether it’s worth enrolling.
Make a Large Down Payment
Rising interest rates are motivating homebuyers to be more careful about making the best financial choices. When you bring more cash to the table, you can lower interest rates and eliminate mortgage insurance. Since mortgage insurance raises interest rates, paying down enough of the new home’s value gives you the advantage of less interest in general on your upcoming mortgage.
Paying down your loan more points with a lump sum at closing will create even better mortgage payments. Marketplace Homes can help you get in this financial position by freeing equity through our unique incentive programs like Sell & Stay. Not only do you get cash in hand before closing, but you can also stay in your home like a rent-back until you are ready to move.
Find Your Dream Home With Marketplace Homes
If you’re ready to take the next steps toward finding the home of your dreams, contact us today. Our special incentive programs will help you unlock equity to get you the best possible interest rates and make your offer competitive. We can also help you find the ideal new build from one of our trusted builder partners or assist you with finding the right property in your neck of the woods.
Local Broker Information: https://www.
Alicia Persson is a real estate content/SEO writer at Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined Marketplace, she was a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her highly versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.