If you want a word that encourages clarity and understanding, bi-weekly isn’t it. After all, as Merriam Webster indicates, this adjective can mean either that something happens twice a week or that something happens every two weeks. However, the prospect of saving a substantial sum on your mortgage is generally enough to get people to wrestle with this wishy-washy word. Understanding bi-weekly mortgage payments may take a bit of effort at first, but once you figure it out, that information is yours to use. Could it help you save thousands of dollars over the life of your home loan?
Understanding Bi-Weekly Mortgage Payments
What are bi-weekly payments? What are their benefits? What are the downsides to this approach? If you decide that you want to use this strategy to pay your mortgage, what do you need to do? Let’s explore . . .
Defining Bi-Weekly Mortgage Payments
When it comes to loans, bi-weekly means every two weeks. Therefore, it should come as no surprise that a bi-weekly mortgage payment plan involves making a home loan payment every two weeks. As Investopedia explains, you don’t pay a full payment every two weeks. Instead, you pay half of your normal monthly payment. As a result, you’ll pay 26 half payments over the course of a year, which equals 13 full payments. That means that a bi-weekly payment plan sets the stage for you to pay an extra monthly mortgage payment without actively realizing it.
The Advantages of Making Bi-Weekly Home Loan Payments
As The Truth About Mortgage notes, making bi-weekly payments on your home loan can have a positive impact on several things:
- You’ll build home equity faster.
- You’ll pay less in interest over the life of the loan.
- You’ll reduce your principal balance quicker.
- You’ll pay your mortgage off and own your home sooner.
The Disadvantages of Making Bi-Weekly Home Loan Payments
Bi-weekly payments clearly have their benefits, but there are a variety of reasons why not everyone opts to use that payment strategy. As Clever Girl Finance reports, making biweekly payments on your home loan can have its downsides:
- More money will go to your mortgage, leaving you with less money for other things.
- Your payments may not be applied as expected. Some mortgage servicers don’t apply partial payments immediately. They’ll hold them and wait until the second partial payment arrives. Then, they’ll apply the full amount.
- You might face prepayment penalties. Check your loan document to see if paying your loan off early will trigger a financial penalty.
- There could be fees to set up this type of payment plan. This is especially true if your mortgage servicer doesn’t offer a bi-weekly payment plan option, and you decide to go through a third-party company.
How to Set Up Bi-Weekly Home Loan Payments
Some lenders make it easy to switch to bi-weekly loan payments. They offer the option on the payment stub or website, and homeowners simply have to opt in. In situations where mortgage servicers don’t offer this type of plan, some homeowners turn to third-party services. Others try a do-it-yourself approach and send in half of their payment every two weeks. As Time reports, this is a bad idea. While some companies will go ahead and credit the payment, others will flag the account for problematic payments, which could create credit troubles. Before trying to adjust your mortgage payment on your own, be sure to call and talk with your mortgage servicer so that you know how the payment will be treated.
What if your mortgage servicer won’t work with you to allow bi-weekly payments, but you want the financial benefits? The Balance offers a solution. Take the amount of your monthly mortgage payment, and divide it by 12. When you make your regular monthly home loan payment, include that amount as a principal-only payment. Over the course of the year, it will have the same effect as making bi-weekly loan payments.
Whether you have questions about bi-weekly mortgage payments, are eager to explore the ins and outs of renovation loans, or want to learn more about what refinancing could mean for you, PrimeLending West Texas is ready to assist you. Contact us today to get started.