A mortgage company is not legally required to allow you to make bi-weekly payments, but many lenders do offer this option or allow you to set it up through third-party services. Here’s how it works and how it might benefit you:
How Bi-Weekly Payments Work
Standard Monthly Payment: Normally, you make 12 monthly payments per year.
Bi-Weekly Payment: Instead of one monthly payment, you make half of your monthly payment every two weeks. Since there are 52 weeks in a year, this results in 26 half-payments, which equals 13 full payments per year—one extra payment.
Pay Off Your Mortgage Faster: That extra payment each year directly reduces your principal balance, which can help you pay off your mortgage faster. Depending on your loan term and interest rate, this could shave several years off a 30-year mortgage.
Interest Savings: By paying down the principal faster, you reduce the amount of interest that accrues over the life of the loan. This can result in significant savings, particularly in the early years of the mortgage when interest makes up a larger portion of your payment.
Build Equity Faster: Since you're reducing your principal more quickly, you build equity in your home faster. This can be beneficial if you plan to sell or refinance your home in the future.
Lender Policies: Not all lenders allow bi-weekly payments. Some may require you to enroll in a specific program or use a third-party service. Be sure to check if there are any fees associated with setting up a bi-weekly payment plan.
Do-It-Yourself: If your lender doesn’t offer a bi-weekly option, you can mimic the effect by making an extra monthly payment each year or by dividing your monthly payment by 12 and adding that amount to each month’s payment. This way, you achieve the same result without needing a formal bi-weekly plan.
Third-Party Services: Some companies offer to set up bi-weekly payments for a fee. Be cautious with these services, as the fee may outweigh the benefits unless you’re unable to manage the payments on your own.
A mortgage company is not legally required to allow you to make bi-weekly payments, but many lenders do offer this option or allow you to set it up through third-party services. Here’s how it works and how it might benefit you:
How Bi-Weekly Payments Work
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Potential Benefits of Bi-Weekly Payments
Pay Off Your Mortgage Faster: That extra payment each year directly reduces your principal balance, which can help you pay off your mortgage faster. Depending on your loan term and interest rate, this could shave several years off a 30-year mortgage.
Interest Savings: By paying down the principal faster, you reduce the amount of interest that accrues over the life of the loan. This can result in significant savings, particularly in the early years of the mortgage when interest makes up a larger portion of your payment.
Build Equity Faster: Since you're reducing your principal more quickly, you build equity in your home faster. This can be beneficial if you plan to sell or refinance your home in the future.
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Considerations
Lender Policies: Not all lenders allow bi-weekly payments. Some may require you to enroll in a specific program or use a third-party service. Be sure to check if there are any fees associated with setting up a bi-weekly payment plan.
Do-It-Yourself: If your lender doesn’t offer a bi-weekly option, you can mimic the effect by making an extra monthly payment each year or by dividing your monthly payment by 12 and adding that amount to each month’s payment. This way, you achieve the same result without needing a formal bi-weekly plan.
Third-Party Services: Some companies offer to set up bi-weekly payments for a fee. Be cautious with these services, as the fee may outweigh the benefits unless you’re unable to manage the payments on your own.
#realestate