If you’re in the market to buy a home or have ever owned one, then you obviously know about mortgage payments. Typically, a mortgage payment is paid once a month and can last for ten, 15 or 30 years depending on which works best for you. However, did you know that you could pay your mortgage twice a month?
This is called the bi-weekly mortgage payment, and here’s how it works:
Instead of 12 payments per year, you’re making an equivalent of 13 full payments per year. Because there are 52 weeks in a year, that means 26 bi-weekly payments. This, in turn, lowers your principal amount quicker and reduces the amount of interest you pay.
For example, a home that is $150,000 at a four percent interest rate for 30 years comes out to a total of $258,000, and the monthly payments would be $716. A bi-weekly mortgage plan with those same values equals $358, and the total ends up to be $240,000.
Over time, paying 13 payments per year instead of the standard 12 can really make a positive difference. With a 30-year mortgage payment plan, you could knock off about four years of payments; in a 15-year plan, you can shave off around two years. Although you are paying 13 payments instead of 12 each year, ultimately you’re paying less for your house since the total interest you pay decreases.
Many people get paid twice a month, and they like the bi-weekly mortgage payment for this reason. As opposed to paying a lump sum each month of, say, $1,200, it’s easier for them to pay $600 twice a month instead.
Our team at First Lenders is here to answer any other questions you have about your mortgage. Additionally, please feel free to visit our mortgage calculator page here to look into the yearly, semi-annually, quarterly, monthly, bi-weekly and weekly mortgage options.