Should I Make Bi-Weekly Mortgage Payments?

The standard payment plan on any mortgage entails once-monthly payments that apply to both the loans’ principal (the initial amount borrowed) and the interest rate. However, it is the strategy of many homeowners to take on a more aggressive payment schedule with their mortgages. One common tactic that homeowners apply is to start making two payments per month. These bi-weekly payments are intended to help pay off the principal on the mortgage faster and reduce the amount paid toward the loan’s interest. A mortgage broker in North York says that the bi-weekly strategy is what often separates homeowners who are mortgage free in 20 years from the ones that take the full maturity.

This is great, and if handled appropriately could pay off a homeowner’s mortgage at an accelerated rate. But this is not always the case. Read on to learn whether or not paying off your own mortgage with a bi-weekly payment schedule would be advantageous to your situation.

Why Pay Bi-Weekly Instead of Monthly?

A bi-weekly payment schedule should more rapidly tackle the mortgage loan’s principal, thus reducing the amount in interest that has to be paid for the duration of the loan. When it is phrased this very simple way, most people can see the appeal of making two payments per month on their mortgage. This is an aggressive way of handling one’s mortgage, and with certain lenders it works spectacularly at getting the homeowner ahead.

There are 52 weeks in a year, which totals to 26 bi-weekly payments, or 13 monthly payments, over the course of a year. Even that one month’s additional payment toward the mortgage’s principal can save a significant amount of interest from flying out of your wallet.

But what if it doesn’t? Well, that depends on the lender.

Choosing Lenders Wisely

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Many lending institutions do not offer bi-weekly payment schedules for the mortgages that they borrow out. Of the lenders that don’t do this, many will defer to third-party processing companies to process your payments. This often doesn’t end up working out the way that you want it to, with 26 payments being made over the course of the year.

What often happens instead is the processing company simply holds onto the second payment for the two weeks until the next payment comes in, and then pay your monthly amount on your behalf. This does nothing to help homeowners get ahead on their mortgage loans.

Some third-party processing companies also charge hefty fees for their services, whether they hold onto your payments or pay them out appropriately  on the bi-weekly schedule you’ve outlined. A setup fee can run as much as $300!

For these reasons, homeowners looking to outsource the handling of their mortgage payments need to be careful in researching processing companies to work with. Some are simply not worth the setup charges and will do nothing to tackle the principal on your loan.

Making Bi-Weekly Payments On Your Own

One of the easiest approaches to arranging bi-weekly payments is to place the second payment each month into a savings account. The total at the end of the 12-month year is then paid toward the principal on the loan-not the interest. This is not the same as making two payments per month, on a practical level, but it has the same effect.

Before you decide to start making bi-monthly payments toward your loan, make sure to ask your lender the right questions:

  • “Do you handle the payment processing, or does a third-party company do it?”
  • “Will my second payment each month go toward the principal alone, or the principal plus interest?”
  • “Will I be penalized for making extra payments?”

It can certainly be worth it to make bi-weekly payments toward one’s mortgage. However, it does require a bit of research into local lenders and their processing policies before taking this aggressive approach to tackling their mortgage.

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