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Should You Switch to Biweekly Mortgage Payments?
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Most mortgages include regular monthly payments, however changing to biweekly can minimize just how much interest you pay and even assist speed up the timeline of owning your home outright. However, just paying every two weeks does not guarantee these results - enjoying these benefits eventually depends upon how your loan provider handles biweekly mortgage payments.
Why make biweekly mortgage payments?
Making biweekly mortgage payments indicates paying half of your regular monthly mortgage payment every two weeks. Instead of making one payment each month, you'll ignore the calendar months and go by weeks- 26 half-payments over the course of the 52 weeks in a year. It's the equivalent of making one additional monthly payment annually, with one small however substantial difference from your other payments: It will be used only to your principal balance, not your interest.
Biweekly payments can trigger more than two monthly payments
Because the months of the year have different lengths, paying "biweekly" means your payments will sometimes turn up more frequently than two times a month. On a biweekly schedule, you'll have two calendar months in which you wind up making 3 payments. For the rest of the time, you'll make just two payments per month.
For example, if you have a 30-year loan with $1,450 monthly mortgage payments, you'll pay $17,400 per year towards your mortgage. But if you change to a biweekly payment schedule, you'll make 26 payments of $725 each, totaling $18,850 per year. The table below compares the 2 payment schedules:
As you can see, you would trim about five years from a 30-year loan term and also conserve $53,000 in interest by switching to biweekly payments.
Choosing a biweekly payment schedule also implies you'll build equity much faster. Here are a few reasons you might wish to construct equity as rapidly as possible:
- To get rid of PMI. If you put down less than 20% on your house, many lending institutions need you to pay for personal mortgage insurance (PMI). Once you reach 20% equity, however, you can get rid of PMI and put that money toward your goals.
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