Could A Bi-Weekly Payment Plan Save You Money on Your Mortgage?
posted in Mortgage News
Many homeowners want to pay off their mortgage sooner, and for those that do, a biweekly payment plan can help to save them a significant amount of money.
While purchasing a home typically requires an amount of money ranging from between two and four months of mortgage payments, should you wish to pay off your mortgage in less than that, you will likely have to pay more in a lump sum to reduce the overall interest payment on the property.
Let’s look at biweekly payment plans in a little more detail:
What are the frequency of payments with a biweekly plan?
Spread out over 2 to 4 weeks, all mortgage payments, taxes and insurance with a biweekly mortgage, amount to between 50 and 80% of what is paid for the mortgage a year out of 12. Over a long-term period, this type of payment plan offers borrowers a high level of savings.
If we take a mortgage payment of around $1,000 a month, this will cause the interest to be spread out over a period of 12 months, which adds up to $20,000 over the entire year. Regular 2-4 monthly payments on the other hand, add only $500 to the mortgage payment within that same period of 12 months.
A biweekly mortgage payment plan offers borrowers 2 significant advantages:
- • The ability to pay off a mortgage at an earlier rate
- • The ability to pay off your loan sooner
What savings can be achieved through a biweekly payment plan?
Let’s say a biweekly payment plan enabled you to reduce your 12 month mortgage from 30 years, to as little as 5, you could save as much as $45,000 over that period, and as interest is a major factor when buying a new home, reducing the time to pay off a mortgage will allow you to save tens of thousands of dollars.
If you’re the type of borrower who can schedule their mortgage payments around their life, then you will almost certainly benefit from a biweekly payment plan. Let’s say you have additional money that you’d like to convert into funds that you can use, but the large amount prevents you from being able to take out a second mortgage or borrow money to pay off debts. With a biweekly mortgage plan, on the other hand, you’ll be able to cycle through your monthly expenses, making your mortgage payment. Since the amount that you are giving the bank for your mortgage will cycle with your money, you will be able to pay off your home sooner than you thought possible.
To conclude, you may be able to save as much as $10,000 - $50,000 over the term of a mortgage by making payments every fortnight, but it’s important to carefully consider your financial circumstances and talk things over with a broker or your lender, to determine what type of biweekly payment plan will best suit your circumstances and save you the most money.