Biweekly vs. Monthly Mortgage Payments: Which is Right for Me?

Owning your own home is something that nearly every American looks forward to at one point in their life. However, one thing that people don’t look forward to is paying off a 25-30 year mortgage. Luckily, there is a mortgage payment plan that can cut years, and over $25,000, off your 30-year mortgage.


What exactly are we talking about? Biweekly mortgage payments.


A biweekly mortgage is a mortgage payment plan where payments towards the principal and interest are made every other week as opposed to just once a month. These payments are exactly half the amount of a monthly payment, just made more frequently.


Here’s how the process works:


Let’s say you have a $200,000 loan for 30 years at 4.5% interest. This will require a monthly payment of $1013.37. Without making any additional monthly payments, this loan will take 30 years to pay off, and will cost $164,813.42 in interest payments.


Now, let’s say you have the same loan, but now you’re paying biweekly instead. This will require a payment of $506.69 every 2 weeks, or 26 times a year. By making 26 half-payments each year, you’re essentially making 13 full payments – one full payment more per year than a monthly plan.  With the help of these extra payments, the loan will be paid off 4 years sooner, and will only cost $137,937.72 in interest.


What are the benefits?


Apart from the obvious benefits of saving time and money, biweekly payments are also beneficial to anyone who receives their paycheck biweekly as well. When you get paid biweekly, sometimes it can be difficult saving money from your first paycheck to go towards your mortgage next month. With a biweekly payment plan, you can align your mortgage payments with your paycheck schedule, allowing you to keep better track of your money. You can even have the payments automatically deducted from your bank account so you never miss a payment.


What are the drawbacks?


Only certain types of mortgages allow for true bi-weekly payments, while most fixed rate mortgages don’t.  If your mortgage doesn’t offer this type of payment plan, there are alternatives to help you achieve the same money saving result!  By transferring a bi-weekly amount (half of your regular mortgage payment) into a separate savings account, you will still be accumulating a full extra payment each year that can be applied to the principal balance of your loan.


Another option is to divide your mortgage payment by 12 and add that amount onto each monthly payment, whether you submit payment weekly, bi-weekly or monthly, you would still be paying down a full additional payment of your principal balance per year.


Biweekly mortgage payments can put a serious strain on anyone with a tight budget. Because a biweekly payment plan has you make 13 “monthly” payments, as opposed to 12, you need to decide whether or not that additional payment could be better suited for a different investment. For example, if you have credit card debt with high interest rates, it might make more sense to put the additional payment towards that, as opposed to paying off your low-interest mortgage. In this instance, you could be better suited using the traditional monthly payment system.


If a biweekly plan is not feasible and a monthly plan doesn’t pay off as quickly as you’d like, you can make your own payments. Paying on your own, you must always pay the minimum, but you can also make random additional payments whenever you have the extra spending cash, allowing you more flexibility.


For more information about the advantages of setting up a biweekly or monthly mortgage payment plan, talk to our mortgage-lending experts at your local FNB. To calculate exactly how much a biweekly mortgage plan can save you, check out FNB Fox Valley’s free, online mortgage calculator.


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