Looking for an easy way to help pay your mortgage faster, build equity faster and reduce the total interest over the life of your mortgage? Bi-weekly mortgages may be worth considering.
Bi-weekly mortgage plans involve paying half the amount every two weeks. In other words, you split the monthly payment into two installments. Through this approach, you will make 13 payments in a year instead of 12. The mortgage provider applies your 13th payment to the principal. With a twice-a-month mortgage plan, your balance reduces quickly.
Let us explore some of the benefits of this approach.
You repay the mortgage faster
One aspect of repaying your mortgage twice a month is the 13th-month leverage. Assume that you have a 15-year mortgage. If you were to opt for one payment per month, you would take 15 years. The extra month translates to 15 months, or a year and three months less of the mortgage period. That additional payment reduces the time you need to repay your mortgage.
You enjoy savings in interest
If your lender allocates the extra payment toward the principal, you pay it off faster. This allows you to save on interest over time, freeing up money for other use. You could channel the funds towards a retirement plan, other financial investments or other life goals or events, for example.
Budgeting may become easier
Smaller payments are easier to budget compared to larger ones. If you receive biweekly checks, you can plan your spending to hive off the same amount from each. That way, you don't struggle with balancing your budgeted spending. Everything is straightforward.
You build equity faster
A biweekly payment plan speeds up your equity buildup. Equity refers to the financial stake you have in the home. Consistently making additional payments towards your mortgage can lead to an accelerated growth in your home equity. This may become highly desirable and beneficial when seeking home equilty loans in the future, or when ready to restructure your loan or when you get ready to upgrade to a newer bigger home using your equity as down payment.
While bi-weekly mortgages can present some distinct advantages, it is recommended that you take the time to explore this approach in depth with a Mortgage Loan Advisor to determine how to best leverage this strategy to suit your needs, lifestyle and yield the most benefit. We encourage you to contact one of our experienced loan officers from any one of our locations for a free consultation, and ask the right questions to evaluate if this approach is right for you.