drakebayrealestate

Does It Improve Credit Score?

Does It Reduce the Interest?
bloglines.com
How Does the Math Work?

What's the Downside?

Is Making Biweekly Mortgage Payments a Great Idea?

Suzanne is a content online marketer, author, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content methods.

If you are a house owner with a standard mortgage who makes month-to-month payments on your home, you might have found out about biweekly mortgage payments as an alternative to traditional payment plans. The logic is that increasing the frequency of the payments decreases the interest that develops and, over the course of a 30- or 15-year mortgage, that can equate to years of payments eliminated from your loan. However, biweekly mortgage payment programs generally bring extra fees and need concurring to a larger payment amount.

Before you register for biweekly payments, it 'd be wise to weigh the advantages and of this type of program to identify whether it will actually save you any cash.

- Some biweekly payment programs provided by loan providers are not the very best monetary option for the homeowner.

Committing to biweekly mortgage payments can be difficult on a tight budget.
Biweekly mortgage payments will not necessarily improve your credit rating.
Making additional payments towards the principal of your mortgage is a method to reduce your interest payments over the life of the loan. You don't need an official agreement to do this.
In any case, make sure your mortgage does not come with an early prepayment charge. That will damage any technique for paying off the loan early.

milan2099/ Getty Images

Will Switching to Biweekly Payments Boost My Credit Rating?

Using a biweekly payment schedule established by your mortgage lending institution puts you on an automatic withdrawal strategy that ensures that your payments are made on time.

If you're the kind of individual who misses out on payments from time to time because you forgot to compose the check, an automated payment schedule will enhance your credit since your payments will be on time. However, you can get the same benefit with an automated monthly payment.

Will Biweekly Payments Reduce the Interest I Pay?

The idea that biweekly payments will lower your interest payments may be a myth. Why? Because, depending on the details of your loan, there is a likelihood that the business getting your mortgage payment isn't the business that holds the loan.

Although you're paying twice each month, the servicer getting your payment isn't making biweekly payments to the business that owns your loan. It's more most likely that they're most likely holding the payment in an account up until completion of the month.

But will you still be reducing the interest that is building up over time? Yes. Bear in mind that each calendar year has 52 weeks. If monthly has four weeks that equals 48 weeks. So, biweekly payments don't consist of two payments each month however rather add up to 26 half payments-the equivalent of 13 regular monthly payments in a year.

Some mortgage companies do not accept biweekly payments on mortgages, so you ought to ask ahead of time before signing up for a biweekly payment plan through a third-party lender.

How Does the Math Work on Biweekly Mortgage Payments?

It works like this: Biweekly payments amount to 13 monthly payments in a year, while traditional month-to-month payments are equal to 12 payments each year.

By paying an extra month every year, you're paying additional principal, which shaves 6 to eight years off the life of the loan gradually.

But do you need to make biweekly payments to do that? Instead, you could divide the total of one month's payment by 12 and include that total up to your month-to-month mortgage payment.

If you're paying $1,500 monthly, divide 1,500 by 12 and make your month-to-month payment $1,625. Talk to your mortgage business first to make certain there isn't something more you need to do to ensure the money is applied to the principal quantity of your loan.

What's Wrong with Biweekly Mortgage Payments?

There are potentially two problems with choosing a lending institution's biweekly payment program:

- There are frequently fees connected to this payment plan. That consumes into the amount you're conserving by accelerating your payment schedule.
- You may, like many American customers, already have sufficient contractual payment obligations in your life. Unless you have substantial financial reserves, you may wish to keep some versatility in your spending plan instead of dedicating to biweekly payments.

Remember, you can constantly make an additional payment when you get three incomes in a month, get a tax refund, or enter into a windfall. You don't need to contractually obligate yourself to do it on a monthly basis.

Why Are Biweekly Mortgage Payments a Great Idea?

There are a couple of advantages to biweekly mortgage payments. They consist of:

- Settling your mortgage faster, and paying less interest over the life of the loan.
- Building equity in your house much faster.
What Are the Downsides of Biweekly Mortgage Payments?

Signing a formal agreement to make biweekly mortgage payments has a number of prospective downsides:

- There are frequently charges involved and they will eat into the amount you're saving by increasing your yearly mortgage payment.
- You're locking yourself into a commitment to pay a bigger amount every year. If your budget takes a hit from another direction, you could regret that.
What Are Other Ways I Can Pay For My Mortgage Faster and Cheaper?

You can pay off your mortgage earlier and decrease your interest expenses without committing to a biweekly mortgage payment. For example, you can utilize a bonus or an unexpected windfall to pay off a chunk of your mortgage. If you get a tax refund, put the cash against your mortgage.

Whatever you do, ensure that you contact your mortgage holder in advance and ensure that your extra payment will be used against the principal of your mortgage loan.

There are ways to pay down a mortgage without registering for a strategy that might come with charges connected. The benefits may not exceed the gains of a biweekly mortgage.