What Is the Advantage of Paying Your Mortgage Bi Monthly?
There are various viewpoints on biweekly mortgage payments. Some observers would have you think it's the best idea since the wheel. Others say while it is good, it is not as beneficial as some claim. Most would agree that you could make biweekly payments without going through the time and expense of refinancing into a scheduled biweekly mortgage. However, there can be a downside that you should be aware before you embark on a biweekly schedule of your own.
Other People Are Reading
-
Biweekly Payment Savings
-
Over time, you can save thousands of dollars in interest by making biweekly mortgage payments. Interest accrues and increases over time. Shortening the time between payments reduces the interest due. By making payments every 15 days, the principal balance is reduced at a faster rate. Over the longer term, this payment method can mean major savings.
Do-It-Yourself Self-Discipline
-
While the do-it-yourself biweekly mortgage saves you the servicing fees charged by most third-party companies that process these payments, it requires you to exercise consistent self-discipline. Receiving only one mortgage payment notice per month, you must discipline yourself to write out that mortgage payment check in mid-month and another on the first of the next month. Biweekly payments look great on paper, but it is up to you to make the process work in your favor.
-
Potential Downside
-
Many mortgage-servicing systems are designed to record only one payment per month. While newer systems are better able to make the appropriate interest postings and principal reductions, many systems and servicing departments are challenged by receiving two payments per month. If the mortgage-servicing department must simply hold your first payment and wait to receive the second one before posting, you have achieved little. Actually, you have suffered a loss, as your funds used in the first payment are no longer yours to use.
Annual Bottom Line
-
The real benefit of making biweekly mortgage payments is more a calendar issue. With 52 weeks in a calendar year, you will make 26 biweekly payments over each year. This means you will make the equivalent of 13 monthly payments per year. This extra payment can perform wonderful savings for homeowners. The interest savings are helpful, but the primary advantage over time is that extra monthly payment you make over the course of a calendar year. You might even want to simply pay extra principal with your regular monthly payment. This may accomplish the same goal of interest cost savings without the necessity of making two payments each month. The lower principal reduces interest costs. These reductions can quickly become significant.
-
References
- Photo Credit southern home image by Denise Kappa from Fotolia.com
