With the age of the first time home buyer rising, paying off your mortgage early makes sense!
Paying Your Mortgage Biweekly Can Save You Money
Biweekly mortgage payments can help you save a ton in interest and knock several years off your loan. But they’re not the perfect fit for everyone.
If you’re thinking about switching to biweekly payments, here’s what you should know first.
How Do Biweekly Mortgage Payments Work?
The concept of a twice-monthly payment is a bit misleading. Bi-weekly is not the same as twice a month. There are 52 weeks in the year, which means that on a biweekly payment plan, you would make 26 payments per year. However, there are only 12 months in the year, and if you were making two payments each month, you would only be making 24 payments a year.
By making payments every other week, you are actually paying an additional loan payment each year. Therefore, if your monthly payment is $1,500 a month, you would pay $18,000 a year with monthly payments. If you made payments every other week, you would end up paying $19,500 for the year.
Since there are 52 weeks in a year, you end up making 26 half-payments. That adds up to 13 full payments a year—one extra payment compared to the usual 12.
Now take into account that most home loans are structured as 30-year loans which equates to 360 monthy payments. A 20-year loan is 240 monthly payments, A 15-year loan is 180 monthly payments, a 10-year loan is 120-monthly payments and 5 year loan is 60 monthly payments.
That extra payment goes straight toward your loan balance, helping you pay off your home faster and cut down on interest.
Can Homeowners Save a Significant Amount?
The biggest perk of making payments more often is that you knock down your principal faster. That means you pay less interest overall and finish your mortgage years sooner.
For example, take a 30-year, $250,000 mortgage with a 5% interest rate. With regular monthly payments, you’d pay about $1,342.05 each month (not including taxes and insurance) and end up paying $233,139.46 in interest over the full 30 years.
But if you switched to biweekly payments, your total interest drops to $189,734.44, and you’d shave about 4 years and 9 months off your mortgage. Depending on your loan terms, changing how often you make payments could cut as much as eight years off your loan.
Image: NMF Lending: Benefits and Strategies for Early Mortgage Payoff
Pros and Cons of Biweekly Mortgage Payments
PROS
- Pay off your home sooner. That extra payment each year chips away at your principal faster.
- Save on interest. Less time paying the mortgage means less interest piling up.
- Build equity quicker. More principal paid = more equity in your home. And if you have PMI, building equity faster might help you get rid of it sooner.
CONS
- Your lender may not allow it. Some lenders only process payments monthly, even if you send them biweekly, meaning you won’t get the benefits. Always check first.
- Possible fees. Some lenders charge for setting up biweekly payments or have prepayment penalties.
- Budget pressure. Paying every two weeks can be tricky if money’s already tight or if your paycheck schedule doesn’t line up well.
How To Set Up Biweekly Payments
- Check your lender’s online payment access. Some let you switch to biweekly autopay with just a few clicks.
- Call your mortgage company. If there’s no online option, ask if they accept biweekly payments and whether there are any fees or penalties.
- Monitor your payments. Even with autopay, it’s smart to check that everything is processed correctly.
Biweekly Payments: Is This Something That Will Work For You?
Biweekly payments can be a great option if you have steady cash flow and want to save on interest while paying off your home faster. But if your budget is tight or your lender charges fees or penalties, sticking with monthly payments might be the safer bet.
https://www.forbes.com/advisor/mortgages/biweekly-mortgage-payments
Did You Know?
The average age of the first time home buyer is at an all time high of 40. With the age of the first time home buyer rising, paying off your mortgage early makes sense!
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