If you’re looking for ways to save big on your mortgage, it’s worth considering bi-weekly payments! Not only can you pay off your home more quickly, but it’s very likely that you will save a lot of money in the long run.
How Bi-Weekly Payment Work?
Instead of paying a single mortgage payment every month (which comes out to 12 payments per year), you set up the mortgage payments to be due every two weeks. This actually comes out to 26 half-payments per year, or 13 full payments. That’s one more yearly payment than you would pay with the traditional monthly plan.
The fact that you’re paying extra every year can work in your favor, and it can knock off as much as 8 years off a 30-year mortgage. You’ll get the home paid off much more quickly, and you will accrue far less interest and taxes because of it!
How to Set Up a Bi-Weekly Payment
Step 1: Talk to your mortgage lender – Visit the company that holds your mortgage and ask them about bi-weekly payments. Some lenders will not allow payments more than once per month, and, in this case, it’s not worth it to try to set up the bi-weekly payments. But if the lender does allow for bi-weekly payments, set it up!
Step 2: Make the payments – Let’s say you are supposed to pay $1,000 per month for your mortgage payments. Now, you will be paying $500 every two weeks. That money will go toward the mortgage principal and covering the interest. Instead of paying $12,000 per year, you’ll be paying $13,000 per year–meaning you’ll finish off repaying that loan much more quickly!
Make sure the payment goes to the principal. If you set up the bi-weekly payments but DON’T specify that you are making the payments to cover the principal, all you will be doing is covering the taxes and the insurance part of the monthly payment. You will not get through the principal mortgage payment any more quickly. So, if you are going to set it up, specify that the bi-weekly payments are directed to the principal.
You can always increase your monthly payments. If your mortgage holder doesn’t allow you to set up bi-weekly payments, you can always increase the amount of money you pay per month. The more you pay off (of the principal loan) every month, the faster you will be paid up and the less interest and taxes you will accrue. If you are paying $1,000 per month, you can increase that payment to $1,200 per month instead of setting up the bi-weekly payments.
Don’t forget about taxes and insurance. While the bi-weekly payments will cover the principal, you will need to make sure that you are covering both the taxes and the insurance portions of the loan. That will mean an addition to the money that you are setting aside for the bi-weekly payments. The good news is that paying it off like this will mean far less spent on both insurance and taxes over the course of the years.
There’s no substitute for paying the loan off quickly. The beauty of bi-weekly payments is that you are paying off the principal of the loan much more quickly, which means you get out of debt at a faster rate. The more money you can set aside for the principal loan every month, the better! Start setting aside as much of your paycheck as possible, and put it towards paying off that loan. Who knows, you may be able to pay off the house in 20 years rather than 30!