Would you benefit from biweekly payments?
published on 07/07/2014
By Michael Decker, Mortgage Originator, RCB Bank Stillwater
Most people pay their mortgage monthly, submitting a payment once a month. There is an option to make biweekly mortgage payments, paying half of your full mortgage payment every two weeks. So what’s the difference?
Making an extra payment
It may seem like you are paying the same amount with both plans, but by the end of the year, you’re making an additional payment on your mortgage with a biweekly plan. With a monthly payment, you make 12 full payments each year. On a biweekly plan, you make 26 half payments throughout the course of a year, which amount to 13 full payments, one more than the monthly plan. How might this benefit you?
Saves money and time
The biweekly payment plan has the potential to save you money and cut the amount of time you have to make payments. When you use a biweekly payment system on a 30 year mortgage, you could cut somewhere between six and eight years off of your mortgage. By cutting this amount of time off your total mortgage, it allows you to potentially save thousands of dollars.
Alternatives to a biweekly payment plan
It is always a good idea to contact the company that is handling your payments and ask if they would allow you to setup a biweekly payment plan. If your company doesn’t allow biweekly plans here are other options for making additional payments. It’s important to always specify that additional payments go toward your principal.
- Pay an additional one-twelfth of your mortgage each month. Designate on your coupon that the amount should go against the principal.
- If you get a bonus or tax refund each year, add the equivalent of one extra payment to your mortgage. Tell the bank that the additional amount goes toward principal.
- If you get paid biweekly, take half of your mortgage payment from each check and put it in a savings account. At the beginning of the month, write your mortgage check from that account. At least twice a year include the equivalent of an extra half-payment. Specify on the mortgage coupon that the additional money goes against principal.
Opinions expressed above are the personal opinions of Michael Decker and meant for generic illustration purposes only. RCB Bank is an Equal Housing Lender. RCB Bank NMLS #798151. Michael Decker MLO# 370522.