Pros of Biweekly Mortgage Payments
Biweekly mortgage payments offer a path to financial freedom. Splitting up payments makes it easy to make one extra payment each year. This helps you pay off your mortgage faster and reduces overall interest costs. For example, instead of 12 monthly payments, you make 26 half-payments annually for a total of 13 full payments. Use an
Extra Mortgage Payment Calculator to see how much time and money you could save.
- Faster Removal of Private Mortgage Insurance
If the down payment on your home was less than 20%, your lender may have required the purchase of private mortgage insurance (PMI) which protects the lender if you do not repay your mortgage. It's typically required until you’ve paid down enough of the mortgage principal to have 20% equity in the home. A biweekly payment schedule can help you reach the 20% equity threshold sooner, letting you cancel PMI premiums and potentially saving you hundreds of dollars each year.
Home equity is the difference between the property’s fair market value and any outstanding loans on the property. The faster you build equity, the better financial position you could be in when you sell, refinance, or take out a home equity loan or
line of credit. Every extra dollar that goes toward your principal balance grows your equity.
- Simplified Monthly Budgeting
Aligning your mortgage payments with your biweekly paycheck schedule could
make budgeting easier. By scheduling mortgage payments to coincide with employer pay periods, you can ensure funds are available when payments are due. This alignment can reduce the stress of budgeting while helping you avoid late fees. For example, if you receive your paycheck every other Friday, you could schedule your mortgage payments for the following Monday, ensuring you always have funds ready.
Cons of Biweekly Mortgages
Some lenders charge fees for setting up and maintaining biweekly mortgage payments. These can include administrative fees or service charges added to your mortgage statement, thereby increasing the overall cost of borrowing. Calculating these costs beforehand helps determine if a biweekly payment schedule is right for your situation.
For example, if your lender charges a $350 setup fee and $1.50 per automatic draft of each half payment from your checking account, compare the total costs against the potential interest savings over the life of your loan.
Paying off your home loan ahead of schedule could result in financial penalties. You might be required to pay your lender a special fee if you pay off all or even part of your loan early. Understanding when or if penalties would apply to your mortgage is important, as they could negate the financial benefits of biweekly payments.
Following a biweekly payment plan can lighten your future financial load. The sooner you start, the greater the financial benefit. Remember to review your mortgage documents and understand the terms before making changes.
Contact your home loan lender to discuss your options today!
