Main image courtesy of Move.org.

Whether you’re still searching for your dream home, or you’ve found the one, chances are you’re going to need to seek out a lender to secure a loan very soon. Finding the right lender is a major part of the home buying process, and we suggest shopping around to find one that offers you a great rate and terms that you are comfortable with.

Once you’re approved for your loan, you’re going to need to consider how you’re going to set up payments. Most people think that a monthly mortgage payment is their only option, but that’s not necessarily the case! In this article, we’re going to cover everything you need to know about:

• Monthly vs. bi-weekly mortgage payments—what’s the difference?
• Are there benefits to going with a bi-weekly payment plan?
• What about disadvantages?

Monthly mortgage payments

The most common type of mortgage payment

When you purchase a house, you do so with the assistance of a loan you take out with a lender and agree to pay back. Typically, those loans are paid back monthly as your mortgage payment. Over the lifetime of your loan, you’ll pay back the principal (the amount you borrowed) plus interest. The amount you pay each month will depend on the type of loan you have, how many years you agreed to, and what the interest charge is. At the beginning of your loan, you’ll primarily be paying back interest, but as the years go on, you’ll start to chip away at the principal as well.

Monthly mortgage payments are a popular option because they are consistently the same each month, which makes budgeting for the month very easy. You can even sign up for automatic withdrawals so you don’t have to worry about setting payments up. Many homeowners choose to go this route, but you may end up paying more over the course of your loan.

Benefits of sticking to a monthly mortgage payment

Monthly mortgage payments are how many people choose to repay their loan because of their benefits:

• Easy to set up automatic payments
• You can build credit while paying your mortgage each month
• You can still make payments in addition to your monthly mortgage

With monthly mortgage payments, you’ll be making 12 payments each year (unless you choose to make additional payments), which means you may end up paying more in interest over the course of your loan. However, there may be another way to continue paying your mortgage, pay less on interest, and pay off your loan sooner.

Bi-weekly mortgage payments—how do they work?

Should you consider bi-weekly mortgage payments?

An alternative to monthly mortgage payments are bi-weekly mortgage payments, which allows you to split your mortgage payment in half and pay it in two installments. Instead of making your payments based on months, you’ll divide up your mortgage payment by weeks. This may be a good move for you if you want to make an extra payment each year that starts to drive down your principal amount. Let’s say you have a $1,200 mortgage payment and decide to enroll in bi-weekly payments, your new mortgage payment will be $600 every two weeks. 

Since there are 52 weeks in a year, this means that you’ll be paying $15,600 each year to your mortgage loan amount. If you went with the monthly payment plan, you would only be paying $14,400 towards your loan each year. The extra $1,200 you’re paying on the bi-weekly plan is going towards your principal, which will help you pay your loan off faster. Not only are you contributing more each year to pay back your loan, you’re going to end up paying less in interest as well.

Those extra payments add up over the years, and if you consistently continue to pay on a bi-weekly basis, you may even have your loan paid off in full sooner. Wouldn’t that be a great feeling!

Are there benefits to switching to bi-weekly mortgage payments? What about disadvantages?

Bi-weekly mortgage payments may seem like a great idea, but it’s best to make sure you do your research to ensure it’s best for your situation. You’ll want to discuss it with your lender to make sure they permit bi-weekly payments, as not all lenders do. Some lenders may charge a fee for this service, or have a prepayment penalty in your contract that will penalize you should you pay off your mortgage early. Either of these may offset any benefits you get from signing up for a bi-weekly mortgage payments. 

If you find that your lender does not offer this option, you should also beware of third party processing firms that offer this service for a fee. If you’re paying to have a bi-weekly repayment plan either through your lender or another company, it may not be worth your while after all.

But if your lender does offer this program, there are many benefits to setting up a bi-weekly repayment system including:

• Shortening the term of your loan
• Paying less interest in the long run
• Continue to build your equity faster
• Keep building your credit

Bi-weekly mortgage payments are a great way to make extra payments and may even shorten the amount of time you’re paying back your loan. However, if there are fees involved, they could negate any of the potential savings you may experience. 

Want to set up your own way to contribute more towards your loan that doesn’t involve your lender or another company? You can! Just divide your monthly mortgage payment by 12, and set that amount of money aside each month. At the end of the year, you’ll have saved the equivalent of an extra mortgage payment, which you can send to your lender instructing them to put it towards your principal.

Bi-weekly mortgage payments may be a good option if your lender allows it and does not charge a fee. Otherwise, monthly mortgage payments are still a stable way to pay back your loan. Don’t forget you can always put aside a portion of money and make an additional payment at the end of year to put towards your principal!