When you think about the different types of mortgages, you probably think about the traditional 30-year versus 15-year options or maybe even the difference between fixed and adjustable rates. Recently, buyers have been showing more interest in the biweekly mortgage, which requires two smaller payments each month. Is this a better idea than a traditional monthly payment? Find out more below.
What Is a Biweekly Mortgage?
A biweekly mortgage is exactly what it sounds like – a loan for which you make payments every two weeks rather than every month. Though it may seem like quite the hassle, there are actually some pretty significant benefits to doing things this way, and all it takes to realize them is a little math. Not everyone can manage this sort of mortgage, though, so before you sign a contract and agree to a new payment schedule, be sure you understand the pros and cons and what might happen if you want to change your payment schedule later down the line.
The biggest benefit of a biweekly mortgage is the fact that you will make an extra mortgage payment each year. This one extra annual payment can significantly reduce your overall interest charges, pay off your mortgage early, and build equity more quickly. If you pay monthly payments, you will make a total of 12 payments each year – one for each month. However, when you make biweekly payments instead, things are a bit different. There are 52 weeks in a year, and since you pay every two weeks, this means you will pay 26 half-payments, or the equivalent of 13 full payments. That extra payment could shave 10 or even 15 years off your mortgage depending on how you set it up.
For some people, two smaller payments each month is easier for them to manage, and this is especially true for homeowners who are paid biweekly or weekly. It is easier to manage payments in smaller chunks, and it is easier to budget for them, as well.
The biggest drawback to biweekly mortgage payments is the fact that you will be required to make two payments each month. Though this might actually be a plus for some, that’s not the case for everyone. The best way to make sure you stay on track is to set up automated payments through your lender. In this type of scenario, your lender will automatically draft your payment from your checking account on its due date every two weeks. Failing to make payments on time can result in extensive late payment fees, extra interest, and in some cases, even higher interest rates.
If you like the idea of paying your mortgage off early, but biweekly payments are not for you, there are other ways. For example, you could pay more than your minimum payment each month, or you could even make an extra payment once or twice a year once you get your annual bonus or your tax refund. No matter which way you cut it, shaving interest and time off your mortgage is always a good idea.