As far as the administration of mortgage payments goes, owners search for even more means to scale down on the quantity of debt faster and also how to reduce the amount of interest. Among the more favored ways are bi-weekly mortgage payments. Rather than the ordinary month-to-month payment scheme, in bi-weekly payments half of the month-to-month mortgage amount is paid each two weeks. Although this may provide quite a number of advantages, it also presents its disadvantages. Following are some of the pros and cons in light of making bi-weekly mortgage payments.
Pros
- Quicker Repayment Period
Undoubtedly, though, the most important power at work with bi-weekly payments is the ability to pay your mortgage off more quickly. In short, because you are making one payment every two weeks, in one year you will have made 26 half-payments, which translates into 13 full monthly payments. That extra payment reduces the principal balance quicker and can translate into a shorter term on the loan with thousands of dollars in interest savings over the life of the mortgage.
- Interest Savings
You will owe way less over the life of your entire loan through an accelerated repayment program that you go under by making your payments bi-weekly. Extra payments offset reductions in principal rather than interest in the long run. Over time, this could save you thousands, depending on how much time you have left on your mortgage.
- Improved Cash Flow Management
Bi-weekly mortgage payments are more budget-friendly for some homeowners. Quite often, there is ease in making the payment in that bi-weekly mortgage payments can be matched with pay periods, cash can flow accordingly, and in no way provide enormous pressure that a bigger sum of a monthly mortgage can cause.
- More Financial Discipline
The bi-weekly payment structure may establish a fiscal habit. Paying every other week will inculcate regular budgeting and financial planning, thus improving the overall money management habit.
Cons
- Limited Availability
Not every lender offers a bi-weekly mortgage payment plan, and even the ones that do offer it do not promote it heavily. Some will only do so if it goes through their internal plan, and some just plain don’t offer it. Consequently, you will want to call your lender and see specifically what the options are for biweekly payments, and whether or not a fee will be involved.
- More Opportunities for Fees
Though paying bi-weekly saves money in interest, some lenders charge a setup or maintenance fee for setting up a bi-weekly payment plan. These fees can easily offset potential savings, so costs have to be weighed against benefits.
- Budgeting Issues
Bi-weekly pay arrangements will be difficult to handle for many homeowners on a tight budget. Realigning the current available resources into bi-weekly date payments may turn out to be an advantage; however, it will translate into new budget preparation and financial planning. Besides, if the frequency of income is not bi-weekly, it complicates the cash flow management.
- Not Always Immediate Solution
While bi-weekly payments can indeed speed up the process of mortgage repayment, since additional payments are modest for a lower balance, the effect on your overall financial situation might be less dramatic. A homeowner with a lower rate of interest or smaller loan balance might realize only modest benefits from it. A good way to pay your mortgage down faster and cut the overall interest is to pay it bi-weekly. You would most certainly like to find out if this is an option without a fee and compare it with your own personal financial situation.
Being able to know the pros and cons will help you decide if a bi-weekly payment plan coincides with your financial goals and is right for your mortgage repayment strategy.