Is paying my mortgage bi-weekly a good idea?
Many experts recommend that homeowners switch to paying their mortgages bi-weekly (every 2 weeks, rather than once per month). The idea is to pay off the mortgage faster because when you pay bi-weekly you’ll make an extra full house payment every year.
This extra payment that results from a bi-weekly payment plan goes entirely toward the principal of the home loan, while the other 12 full house payments are split between principal and interest on the loan.
Using a bi-weekly payment plan in this manner can shorten one’s mortgage payoff by several years; this is why so many financial experts recommend it.
Sounds good, right? Sure, but ultimately there’s no reason to set up a formal bi-weekly payment arrangement with your mortgage lender. If you agree to this plan in writing with your bank, you’ll be contractually obligated to keep up with the bi-weekly payments no matter what. But you don’t need to formalize the bi-weekly payment plan. Simply add the extra payments you’d be making on top of your regular mortgage payment. This gives you the advantages of a bi-weekly payment program, without the binding obligation. That way you can always switch to your normal payment schedule if money is tight and you need to reduce your payment to normal levels for a set period of time.
You can simply add a small amount to each of your mortgage payments every month. Just add enough to total an extra mortgage payment every year. Doing this will equal the same increase that you’d pay if you went bi-weekly, and avoids the fees associated with many of the formal bi-weekly programs. Note that before you try this, you should contact your lender and make sure they will allow you to make these extra partial payments, and that the extra amount will go towards your loan principal. If your mortgage agreement forbids partial payments, you won’t be able to use this option. And if you are able to send extra with each mortgage payment, be sure to provide written instructions about how you want the extra funds applied.
Another option is to make an extra full house payment once annually. If you get a tax refund that is large enough, using it to make an extra house payment is a good option to get the benefits of a bi-weekly payment plan without a big impact on your monthly budget.
And of course, if you can afford to send in even more than an extra payment per year, then you’ll pay off your mortgage even faster.
If you need help budgeting to set aside extra money for your mortgage payments, call us today and speak to a certified housing counselor. We can look at your unique situation and help you create an action plan that will see your mortgage paid off as quickly as possible.