Should You Pay Your Mortgage Bi-Weekly?

 In Blog, Real Estate Questions

Typically, mortgages require homeowners to make monthly payments until the debt is completely paid off. In some cases, though, homeowners choose to make bi-weekly payments.

Sometimes, homeowners will even receive brochures or advertisements in the mail claiming to be able to shorten their mortgage by several years via making bi-weekly payments.

 

There are many misconceptions about the benefits of making bi-weekly mortgage payments. While this can be a good idea in some cases, it is pointless in other instances.

Here’s what you should know about making bi-weekly mortgage payments.

 

 

Why People Choose to Make Bi-Weekly Payments

The choice to make bi-weekly mortgage payments boils down to wanting to pay off your mortgage as quickly as possible. Instead of making 12 payments per year, you make 26.

Aside from this, though, there are two major reasons people choose to do this: to lower their overall interest and to improve their credit.

 

 

 

Credit

Some people believe making bi-weekly payments improve their credit score. This, however, is a myth.

When you enroll in a bi-weekly payment program, your mortgage payments are automated. So, while this is better for your credit if you have a habit of making late payments, it doesn’t improve your credit any more than making regular monthly payments does.

 

If your goal is to improve your credit score, there are much better ways to do so.

 

 

Interest

Ideally, bi-weekly payments would reduce your overall interest as the extra payments would reduce the principal. However, this doesn’t always work as it should.

In some cases, lenders will simply hold both payments until the end of the month and apply it to your loan as one large payment. As a result, the first payment doesn’t reduce the principal. While this will still reduce your overall interest, it won’t reduce it by as much as you probably expect.

 

 

 

Avoid Third Parties

If your mortgage provider offers an option to make bi-weekly payments, then you don’t have to worry about this.

However, borrowers whose lenders don’t offer bi-weekly programs may be given the option to make payments through a third party payment processing company. This should be avoided.

 

Most of these companies charge a setup fee that typically costs several hundreds of dollars. On top of that, many of these third parties will charge monthly processing fees.

 

 

DIY Bi-Weekly Payments

If you choose to make bi-weekly payments, and your lender doesn’t offer its own program, be sure to make the payments yourself.

One way to do this is simply divide your monthly payment by 12, and make a payment of that amount towards the principal on your mortgage.

 

Alternatively, you can save that amount up for 12 months and make one large lump sum payment at the end of every year.

If you decide to do this, check with your lender first to ensure that there are no prepayment penalties.

Ultimately, bi-weekly mortgage payments are a good idea if you are able to comfortably afford the extra expense. Just keep in mind that the benefits may not be as great as you expect them to be.

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