Is it Worth it to Make Bi-Weekly Mortgage Payments?

For anyone who’s ever tried to make an extra house payment each year, it’s often easier said than done. Even though it may have been an established goal, unforeseen expenses and cash emergencies can quickly wipe out funds earmarked for additional payments. That is why many homeowners welcome the idea of making bi-weekly mortgage payments.

How It Works

In this type of payment plan, the borrower pays the mortgage every two weeks instead of monthly. Payments are made towards the principal and interest and equal exactly half the amount the monthly mortgage payment would be. Although the terms and interest rate of the loan must be considered, this type of arrangement has the potential to save the homeowner some money over the life of the loan. 

The reason some homeowners may favor the bi-weekly plan is because it automatically allows them to make an extra payment. For many, handling the monthly home loan expenses this way is easier than trying to set cash aside, little by little, for the extra payment.

It works because in a given year, there are 26 two-week payment times as opposed to 12 months. Paying every two weeks for those additional weeks results in 13 monthly payments instead of just twelve. It saves the homeowner on interest totals and can reduce the loan term, i.e. pay off your home loan sooner. For example, with such a plan, a traditional 30-year mortgage could take only 25 years to pay off. Additionally, the reduction on interest can be tempting.

Since many individuals receive their paychecks on a bi-weekly basis, making their mortgage payment bi-weekly as well, can work out favorably. For a number of homeowners, addressing the financial obligation in two small portions rather than one large house payment just feels better.

The bi-weekly program also creates peace of mind due to its potential for saving on interest and building equity. The benefit of additional equity can open the financial door to home improvement, vacation, or college funds.

Although bi-weekly mortgage payments can be a great option for many homeowners, there are a few drawbacks that should be considered before making a final decision.

Fees

Even though the homeowner may have everything set up with their previously established house payment schedule, making the change to bi-monthly may result in additional fees. Most lenders will call this a “set up” fee. Even though this is typically handled electronically, there may be an annual charge to cover the additional work for processing the bi-weekly portions of your mortgage payment.

Some lenders may advise a homeowner to instead accomplish exactly the same result with no extra fees by dividing the monthly principal and interest payment by 12 and adding that amount to the regular monthly payment. Here’s an example: if the principal and interest is $1000 each month, then the homeowner could add an extra $84 and alert the lender that it should be applied to the principal.

Tying Up Funds

Another downside of the bi-weekly approach to paying off a mortgage is the fact that it does tie up extra funds. After all of the documents have been signed for the new mortgage contract, the homeowner is obligated to make bi-weekly payments, even if something else comes up or those funds are needed elsewhere.

Before making the shift to an official bi-weekly mortgage plan, it is also advised to take a serious look at the overall financial picture. All outstanding loans, debts, and bills should be paid before further extending financial obligations. This holds true even for homeowners who have a low interest rate on their home mortgage.

Before making any major changes to your mortgage, discuss your situation with a knowledgeable, professional mortgage lender or financial planner. The home loan experts at eLEND are here to help, if you need anything. Feel free to call today! (800) 634-8616