Becoming a homeowner is a goal for many North Carolinians, and the biggest part of home ownership is that big monthly mortgage payment that comes with that new home. However, what if you didn’t have to pay your mortgage in one lump sum each month, and could instead pay a smaller sum biweekly, or twice per month? In many cases, you can! Biweekly payments might be a great option for some homeowners, but the key to using this benefit correctly is understanding the ins and outs. Read on to learn about biweekly payments, how they can help homeowners and whether they might be the right choice for you.
What Exactly Are Biweekly Payments?
A biweekly mortgage payment simply means that you are breaking your monthly mortgage payment into two equal pieces, and paying them every other week. This can be helpful for households who receive paychecks throughout the month instead of at once at the beginning and can help make home ownership more affordable by not requiring a large lump sum at the beginning of every month. After these two payments per month, you are still paying the same amount as you would on a once monthly mortgage, it is just broken down into smaller chunks over time.
Can Bi-Weekly Payments Help Me Pay Off My Mortgage Faster?
At first glance, it might not make sense that biweekly payments actually result in paying more throughout the year, but it’s true. When you pay monthly, you are making twelve payments per year. However, with a bi-weekly payment plan, you’re paying 26 half payments in total throughout the year. Factored out, the biweekly payment actually results in 13 total mortgage payments each year—that’s one extra without any extra financial effort! Making just one extra mortgage payment per year can help you pay down the balance of your mortgage years sooner, meaning an accelerated payoff date and less paid in interest overall.
What Are the Downsides of Biweekly Payments?
Biweekly mortgage payments can help many homeowners achieve financial independence faster, however, there are some downsides to this mortgage payment plan. Some mortgage lenders do not offer biweekly payment options. Some others do, but with the use of third-party services that can charge a hefty fee. These fees mean that you are paying another company sometimes hundreds of dollars per payment just to pay your mortgage! Before you decide to pay biweekly, it is important to talk about your options with your lender, and if you haven’t bought a home yet but know that you want biweekly payment options, be sure to look for a lender who offers it.
Another downside of a biweekly payment could come when you pay off your mortgage early. Most mortgages allow buyers to pay off their mortgage as soon as possible, but some lenders leverage prepayment penalties for buyers who pay off their loans too soon. Before you decide to pay off your home at an accelerated rate, check with your lender to see if there is a prepayment penalty attached to your mortgage contract. If there is, weigh your options to see if the amount you will save in interest over the long term is worth the price of the penalty.
The Bottom Line
Only you can decide if a biweekly payment plan could benefit you and your mortgage situation. The NC Housing Finance Agency has resources and information on topics like these and much more to help first-time and move-up buyers get educated on all parts of the home buying process at www.nchfa.com/home-buyers.
