Most people don’t think about how they pay their mortgages unless they purchase a new home or try to refinance. However, it might be beneficial to you to take some time to determine if biweekly mortgage payments are right for you. Adjusting your mortgage to accept payments biweekly can shave years off the life of your mortgage. Before you start signing paperwork to opt-in to biweekly payments, consider the following factors.
What Makes Biweekly Payments Different?
Most people receive their paycheck on a biweekly basis, and it is common knowledge that there are some months that they get paid three times in one month. Slide this knowledge over to a mortgage payment; over the year, a biweekly mortgage payment would mean 26 half-sized payments. Paying that many times is the equivalent to paying 13 full mortgage payments. If you have a conventional 30-year mortgage, you could cut years off of your loan and save thousands in interest payments.
Should You Make Biweekly Payments?
When considering setting up biweekly payments, you need to consider your budget and how that extra payment fits. For example, if your standard mortgage payment is 1600 (which is the national average according to the United States Census Bureau), your biweekly payment would be $800 plus insurance and taxes. Can you comfortably afford to have an $800 bill every two weeks?
The question of whether you should start biweekly payments could also be a question about your drive to get out of debt and own your home. What are you willing to give up to get out of debt faster and own your home? Are you ready to get a second job or add hours? How intensely do you want to hurl debt out of your life?
Beware!
Ensure that your lender offers a biweekly payment option, some mortgage lenders do not offer a biweekly payment option, or if they do, they add a service fee to your monthly mortgage bill. If your bank or lender does not provide a biweekly opportunity, do not turn to a third-party service for this feature. Most third-party mortgage payment services will charge you a setup fee, then continue to charge you a monthly service fee. People who use a third-party service report that once they started a contract with that service provider, it is tough to get out of the contract. To add insult to injury, some third-party service providers hold onto your biweekly payment and nullify the goal of adding a monthly payment per year.
If your lender does not provide a biweekly payment option, you can simply do it yourself over time. Take your regular monthly payment amount and divide that by 12. You then have a choice, either add that amount to the principal every month or saving that money to add to the principal at the end of the year. The critical point is to apply the balance to the principal, which cuts the loan’s life and reduces the amount of interest you will pay.