Biweekly Mortgages Pros and Cons

There are times when making payments every month for years can get on your nerves. All you would want to do is get rid of the debt faster so you can invest your finances elsewhere.

Right now, you might be thinking, “We can make one payment every month, right?” The answer is yes and no.

Yes, that is what happens in a conventional mortgage.

No, that is not the only way to pay off your mortgage.

If you have the budget to make your mortgage payment more than once, the biweekly mortgage can be a good option for you.

What is Biweekly Mortgage?

This is the type of mortgage where you can pay once every 2 weeks during the loan repayment period. This is contrary to conventional mortgage loans, where you can pay once a month.

Biweekly mortgage payments help you clear your debt faster as your repayment frequency will increase.

How Does Biweekly Mortgage Work?

If you have seen different types of conventional and government-backed mortgages, there would be one common theme, monthly mortgage payments.

When it comes to Biweekly mortgage payments, it is exactly as the name suggests, your mortgage payment is due every two weeks. 

Let’s look at an example to clear any confusions you may have.

Suppose your monthly mortgage is $1,200. That means you currently pay (1,200 x 12) 14,400 annually.

Now, here is how your mortgage payments will be structured when you change to biweekly payments. Instead of paying 1,200 in one go, you will pay (1,200 / 2) $600 once every two weeks. As we have 52 weeks a year, you will make 26 payments.

Yes, that means you need to pay two extra payments as compared to the conventional mortgage. So, instead of paying $14,400 in a year, you will pay $15,600.

But don’t worry, this additional payment of 1,200 will count as your principal payment.

Pros and Cons of Biweekly Mortgage Payments

Now that you know how the biweekly mortgage operates, you would want to decide if you want to choose it for financing your next home.

Let’s look at some advantages and downsides of biweekly mortgage payments for you to make the right decision.

Advantages of Biweekly Mortgage

Build Equity Faster

Who doesn’t want to own a larger chunk of their home equity? Everyone does. So, instead of paying your mortgage loan once every month, paying your mortgage once every other week will help you earn more equity.

This way, by making 26 mortgage payments every week instead of 12, you can release the burden of debt from your shoulders. 

Suppose you have a $300,000 mortgage with a 4% for a 30 years period. You can pay off the entire loan and reduce the repayment period to 26 years with a biweekly mortgage.

Reduce Interest Rate

Whenever you make a mortgage payment, it is a combination of a principal payment and an interest rate. Since a biweekly mortgage shortens the loan period and allows you to repay faster, the interest you pay over time will also come down.

Here is an example. If you have to pay off a mortgage loan of $200,000 with a 4% interest rate over a 30-year period, your total interest rate will be $143,739.

But if you go for the biweekly mortgage payments, you can save about $27,000 by paying 26 times a year. Good saving, won’t you agree?

Get Rid of Private Mortgage Insurance

Since biweekly mortgage payments are a way to build your equity faster, you can ensure you don’t have to bear the private mortgage insurance cost for long.

This can free up a lot of your finances, which you can invest in dealing with other home expenses.

Disadvantages of Bi-Weekly Mortgage

Additional Fees

Apart from the biweekly mortgage payments, you may have additional expenses coming your way. Before signing the dotted line of your bi-weekly mortgage agreement, make sure you understand the terms of the setup fee structure.

This can be a one-time or monthly cost on every mortgage payment, depending on the terms of your agreement.

Some lenders or financial institutions offer these services for free. So, it is better to be clear on whether you have to bear this cost or not.

Lenders Are Hesitant

A longer loan period is always better for the lender. Why? Because they can generate greater money with the interest rate.

It is one of the reasons why many lenders might not be a big fan of biweekly mortgages, as that means their interest income will reduce. You may have a hard time finding a lender to offer a biweekly mortgage loan or convincing your existing lender to convert your monthly mortgage into a biweekly.

Permanent Arrangement

Switching to a biweekly mortgage is not like trying the beer of a new brand and moving to another one if you do not like it. Once you have signed up for a biweekly mortgage, it can be hard to switch.

Apart from negotiating with the client, there will be a lot of exhausting paperwork and formalities. 

Sometimes, it may not even come to this if there is a “No switching clause.” That means you may have to continue with the biweekly mortgage throughout your loan period. 

Is Biweekly Mortgage The Right Option?

Those were the benefits and downsides of the biweekly mortgage payments. To add to that, here are some questions which you need to ask yourself before switching to the biweekly mortgage.

Are You In Favor of Investing or Saving?

Some people prefer to save their financial assets, while others want to invest now to reap the returns later. Which side are you on?

If you want to invest your money and buy home equity quicker, the biweekly mortgage will do the trick for you.

Is Your Interest Rate Too High?

If you think your interest rate is high, one way to reduce it over time will be to pay off your loan faster. That is possible with the biweekly mortgage.

Do You Have the Budget for It?

It is all good to want something. But do you really have the budget to pay your mortgage at least twice or thrice a month? Make sure you don’t get into financial stress, and you have a stable income to bear these expenses.

Summing it up

Making a biweekly mortgage can increase your payment frequency but decrease your loan repayment period. 

If you have found your financing option for your next property, the next step is to look for real estate that meets your preferences. That is where HAR, a reputable Texas-based real estate can help you out. Reach out to us today.