Is a Bi-Weekly Mortgage Right for You?

There are many different products you can choose from now when you take out a mortgage on your home. From traditional to FHA to VA to reverse to home equity to adjustable rate and many many more. We’re going to highlight the bi-weekly mortgage this time.

So, what is a bi-weekly mortgage? Just like it sounds, it’s one where you pay every other week instead of once per month. When you pay monthly, you have 12 payments per year. When you pay bi-weekly, you have 26 payments per year which ends up being the equivalent of paying one extra mortgage payment during the year, or 13 months of payments.

This type of payment can be great for anyone who gets paid every two weeks, but it can be tricky to budget for when you get paid monthly or twice per month. It takes discipline or just setting up automatic payments to make it work. Many people have this discipline and they set up this style of payment even though they have a traditional mortgage.

There can be great financial advantages to this style of payment because mortgages are based on compound interest. When you make extra payments, you pay directly against the principal on the loan so the interest that is calculated is less than if you don’t make extra payments. Over the life of a loan, you can save many thousands of dollars. This is different from a car loan where it is calculated on simple interest so you pay all of the interest regardless of if you pay extra principal or pay the loan off early.

When interest rates are high, like they are now, it can be hugely beneficial to pay extra on your mortgage. When your next payment comes due, you can look at your statement and see that your principal will be much lower and the interest portion of your next payment will be lower as well. Sometimes making extra payments can save you a lot of money so you don’t need to refinance to a lower rate.

If you are curious about what your home is worth or if it’s a good time for you to buy, give us a call at 803-831-8588. We would love to share our perspective on Lake Wylie and the Charlotte area. You can view current listings and create custom searches on our website here.