If you're trying to figure out the best payment arrangement for your new mortgage, you may already have considered going with a bimonthly or biweekly payment plan. The two might seem similar at first, but the differences are significant. Bimonthly payments can make your payments easier to handle and take a bite out of the cost of your loan, while biweekly payments can increase your interest savings dramatically.
Biweekly mortgage payments are due once every two weeks, year-round. Biweekly payments are calculated on a 14-day cycle that has nothing to do with the month of the year. Over 52 weeks, you will make 26 payments on your biweekly loan, which is more than a bimonthly arrangement will require. This difference can mean a bit higher annual expense but a shorter overall loan term. If you have a 30-year mortgage, the overall length and cost will be reduced significantly, since you will only make payments for a total of 23 years and 11 months.
Bimonthly mortgages come due twice every month on the dates agreed-upon by you and your bank. Typically, payments must be made on the 1st and the 15th of every month no matter how many days are in the month or how many weeks are in the year. This arrangement makes for 24 rather than 26 payments. The term of the loan will be only slightly reduced, however, since you are still making only 12 full mortgage payments per calendar year and therefore are not cutting into the principal to any significant degree. For example, over the term of a typical 30-year loan, opting for bimonthly payments over the traditional monthly arrangement will reduce the number of payments you make by a total of one.
Plans & Savings
In many cases, biweekly and bimonthly payment plans come with a selection of fees from the lender. Your lender may charge you for joining the program, arranging the paperwork or just managing the increased number of payments you'll be making. When you have a biweekly loan, the fees you pay, if they are relatively small, may be worth it, since the money you save in interest is somewhat substantial. The fees involved with a bimonthly loan may not be worth it, however, since you are essentially paying the loan in the same amount of time as someone with a traditional monthly payment, and you aren't saving any interest. With a bimonthly loan, you are basically paying the bank to hold your two payments and apply them to the loan at the end of the month.
If you want to make biweekly or bimonthly payments on your home loan but you don't want to pay extra fees or get tied up if you want to skip a month, consider taking a traditional loan with a monthly payment, then overpaying it a little. Divide one monthly payment by 12 and add the result to your mortgage check every month. The result will be the same as if you'd had a biweekly mortgage all along. If dividing the monthly payment in two makes it easier to handle for you, open a checking account specifically for mortgage payments and deposit half of each month's payment on the 1st of the month and the other half on the 15th, then write the check. There is no need to pay a bank for services you can provide for yourself.
- Bankrate.com: Do You Really Want to Pay Your Mortgage Biweekly?
- The New York Times: The Benefits of a Biweekly Mortgage Plan
- MSN Real Estate: Will Biweekly Mortgage Payments Save You Money?
- Bankrate.com: Biweekly Mortgage Calculator
- Realtor.com: What Are Bimonthly and Biweekly Mortgage Plans?
- Bankrate.com: Forget Biweekly, Just Pay Extra Principal
- Los Angeles Times: Don't Pay a Fee to Enroll in a Biweekly Mortgage Payment Plan
- The Mortgage Professor: Bimonthly and Biweekly Mortgage Payment Plans
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