Buying a home is one of the biggest financial decisions you’ll ever make. When it comes to paying off your mortgage, there are several options available to you. One of those options is bi-weekly mortgage payments. In this article, we’ll explore the advantages and disadvantages of bi-weekly mortgage payments to help you decide if they’re right for you.
What are Bi-Weekly Mortgage Payments?
Bi-weekly mortgage payments are a payment plan that allows you to make half of your mortgage payment every two weeks instead of one full payment each month. This means you’ll make 26 half payments each year, which is the equivalent of making 13 full mortgage payments.
Advantages of Bi-Weekly Mortgage Payments
- Pay Off Your Mortgage Faster
One of the biggest advantages of bi-weekly mortgage payments is that they allow you to pay off your mortgage faster. By making an extra mortgage payment each year, you’ll be able to pay off your mortgage more quickly, which means you’ll save money on interest over the life of the loan.
For example, if you have a 30-year mortgage with a principal balance of $250,000 and an interest rate of 4%, you’ll end up paying a total of $179,674 in interest over the life of the loan. However, if you switch to bi-weekly payments, you’ll pay off your mortgage in just over 24 years and save over $27,000 in interest.
2. Reduce the Total Interest Paid
By making bi-weekly mortgage payments, you’ll also reduce the total interest paid over the life of the loan. This is because you’re making an extra payment each year, which means you’ll pay less interest over the life of the loan.
3. Better Budgeting
Bi-weekly mortgage payments can also help you better budget your monthly expenses. By making smaller payments more frequently, you’ll be able to spread out your mortgage payments over the course of the month, which can help you better manage your cash flow.
Disadvantages of Bi-Weekly Mortgage Payments
Some lenders charge fees for setting up bi-weekly mortgage payments. These fees can range from a few hundred dollars to several thousand dollars. Make sure to research any fees associated with setting up bi-weekly mortgage payments before making a decision.
2. Less Flexibility
Bi-weekly mortgage payments can be less flexible than traditional monthly payments. If you’re not able to make a payment on the scheduled due date, you may be charged a late fee or penalty. With traditional monthly payments, you have more flexibility in choosing when to make your payments.
3. Difficulty in Canceling
Once you set up bi-weekly mortgage payments, it can be difficult to cancel or switch back to monthly payments. Some lenders may require you to refinance your mortgage in order to switch back to monthly payments, which can be costly and time-consuming.
4. Opportunity Costs
By making extra payments on your mortgage, you may miss out on other investment opportunities that could potentially yield a higher return. Before deciding to make bi-weekly mortgage payments, make sure to consider any potential opportunity costs.
Is Bi-Weekly Mortgage Payments Right for You?
Bi-weekly mortgage payments can be a good option for some homeowners, but they’re not for everyone. Before deciding to switch to bi-weekly mortgage payments, it’s important to consider your financial situation and goals.
If you’re looking to pay off your mortgage more quickly and reduce the total amount of interest paid over the life of the loan, bi-weekly mortgage payments may be a good option for you. However, if you’re not comfortable with the fees, less flexibility, or potential opportunity costs, you may want to stick with traditional monthly payments.