Ordinarily, mortgage payments are made on a monthly basis over a number of years. Bi-weekly mortgages, on the other hand, involve paying off the mortgage in two bi-weekly payments every month, as opposed to a single monthly payment. The amount paid every month remains the same, as it’s divided into two. So you must be asking yourself, does this really make financial sense? What benefit does it give you in the long haul? Well, we have compiled a list of the advantages and disadvantages of bi-weekly mortgages, just for your information. Hopefully this will leave you in a far better position to make an informed decision on what type of mortgage is best for you.
Advantages of Bi-Weekly Mortgages
1. Every year has 52 weeks. If you make your mortgage payments once every two weeks, you end up paying a total of 26 times. This translates into the equivalent of 13 monthly payments. This means that you get to clear your mortgage faster.
2. For some, it is more budget friendly to pay once every two weeks compared to the single monthly payments. By splitting the monthly amount into two, a bi-weekly mortgage gives you flexibility. The smaller payment may fit more easily in your budget, especially if your pay period is also bi-weekly.
3. By paying an extra month every year off your repayment schedule, you reduce the amount of money paid in the long run. The extra payment generated should be deducted directly from the principal amount, resulting in less interest paid on the same amount of borrowed money.
4. By making an extra mortgage payment every year, you cultivate financial discipline. The good habits developed over time will trickle down to all areas of your finances, thus helping to improve your financial management skills.
5. It speeds up the building up of equity on a property. A property’s equity is simply the difference between its value and the mortgage balance against it. The faster the mortgage balance reduces, the higher the equity.
Disadvantages of Bi-Weekly Mortgages
1. Some lenders do not offer bi-weekly payment plans. This ends up bringing unnecessary costs in the form of registration fees and bi-weekly charges for lenders.
2. If you are someone with a tight budget, a bi-weekly mortgage could be dicey for your budget. It may tie up much needed extra cash, which can be detrimental in the case something comes up that demands that extra cash elsewhere.
All in all, the advantages of bi-weekly mortgages far outweigh the disadvantages. Hopefully you are now sufficiently informed, and you are on the way to figuring out whether a bi-weekly mortgage is right for you! For more information and to speak to a qualified lender about a bi-weekly mortgage, use the appointment scheduler below.