The Advantages of Bimonthly Mortgage Payments
Usually, you pay mortgage every month by default. With a bimonthly mortgage payment plan, you make payments twice every month. This payment schedule has several possible advantages, but you need to weigh these against the cost of setting up a bimonthly payment schedule. The Mortgage Professor recommends paying your mortgage bimonthly only if your lender charges no fee for it.
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Budgeting
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With a monthly payment plan, you have to pay a large amount of money at a certain time each month. This plan might not match your budgeting style well. For example, you may not have enough funds in your bank account to satisfy your large mortgage payment. On the other hand, each bimonthly mortgage payment is half the amount of a monthly mortgage payment. This reduces the danger of you spending the mortgage payment funds. It also lets you match the mortgage payment timing with your other cash flows, such as your paycheck schedule.
Reduce Mortgage Term
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If the mortgage lender applies your mortgage payment to your loan immediately after receiving it, a bimonthly mortgage payment schedule will shorten the life of your mortgage. This means that you will own your home free and clear faster than you would on a monthly payment schedule. However, the difference is usually small because you still make the same amount of payment each month, only at different times. For example, you may only reduce the life of your mortgage by one month on a 30-year mortgage.
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Interest Savings
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Mortgage lenders base your interest on the outstanding loan balance. A higher loan balance requires a higher interest payment, while a lower balance requires a lower interest payment. As you pay down your mortgage, the amount of interest you pay decreases. Because your loan balance decreases faster with a bimonthly mortgage payment schedule, you will end up paying less interest. However, the difference is usually small, making it not worthwhile If you have to pay a fee to change your payment schedule.
Same Payment Amounts
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Other alternative mortgage payment schedules, such as biweekly or weekly, reduce your interest costs by a larger amount and cut your mortgage term by a longer period of time. However, you end up paying a larger amount each year with those plans if you pay half a regular monthly payment every two weeks or one-fourth of that every week. On the other hand, a bimonthly mortgage payment schedule does not require you to pay more compared to the monthly payment schedule. As such, making the change to a bimonthly schedule will not require much change in your budget management.
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