Traditional mortgages allow for homeowners to make a mortgage payment to their respective lenders once every month, which equals twelve (12) payments a year. However, there is another payment plan that is garnering attention and that is bi-weekly mortgages payments.
Bi-weekly mortgages are a payment schedule that allows for homeowners to make partial payments on their mortgage loan every two weeks and is based on the calendar year, so instead of twenty-four (24) annual payments, a total of twenty-six (26) payments are made. Since, there are fifty-two (52) weeks in a calendar year the a homeowner, is essentially making two extra payments a year which is the equivalent of making one extra monthly payment a year. This is not a type of mortgage loan, it is instead a service that is extended to homeowners. So, now you may be asking what is the advantage and disadvantages of bi-weekly mortgages and how do you go about setting one up?
Over the life your mortgage, it is possible for a homeowner to end up spending just as much money on interest, as the principal loan amount. Needless to say, having a mortgage can be very expensive. The biggest advantage to homeowners is the savings that enrolling in a bi-weekly mortgage payment plan affords them. This accelerated payment plan can save you tens of thousands of dollars over the life of your loan as well as shave off the amount of years you will have to pay on your loan.
So now you may be wondering why this payment option is not offered to consumers by lenders when they are initially applying for a loan? Quite simply, most lenders do not offer this service. Their systems are not set up to receive bi-weekly payments. You should definitely contact your lender to see if they accept bi-weekly payments before you take the initiative to start sending partial payments in. Additionally, if you have an established automatic payment plan in place you may have to pay a penalty to stop that. Also, be aware that if your lender does allow for bi-weekly payments there may be a penalty associated with paying off your mortgage early. Most lenders have done away with that clause but there are still some that do. Not only that, the financial institutions that do allow for bi-weekly mortgages charge certain enrollment, maintenance, and transaction fees for this service and the initial enrollment fee can range from $300 to $500. Lastly, do not sign up for bi-weekly mortgages believing that your credit score will be positively impacted because of the velocity of your payments because this not the case. The three major credit agencies only report in thirty-day increments.
Bi-weekly mortgage payments have several advantages, chief among them is the potential savings over time. However, homeowners should assess their personal situation to determine if this is a good financial route to take; for some it could become more costly, if you are not a strict financial organizer. Also, if an individual(s) does not plan to stay in their home for the life of the loan, then it would not make much sense to enroll in this program.