Advantages of Paying Your Mortgage Bi-Weekly

Start paying your mortgage bi-weekly instead of monthly and shave up to 5 years off of your payment period.

 

One easy way to pay down your mortgage faster is to write bi-weekly checks instead of monthly ones. Pay on this twice-a-month schedule and you’ll get in an extra mortgage payment per year.

 

Sounds weird, but here’s how it works: Of course, there are only 12 months in the year, so you would think that bi-weekly payments would only equal 24 total payments. Because all of the months are made up of a different number of days, when you break down the year into 14-day increments, you actually get 26 bi-weekly time periods.

 

That’s why when you pay your mortgage bi-weekly rather than monthly, you can fit in 2 extra payments or 1 extra month’s payments.

 

Seeing as you are probably already getting paid bi-weekly anyway, it makes sense to just go ahead and set up your mortgage payments according to your pay schedule. Right?

 

There are actually a couple of different schools of thought about this.

 

First of all, if you don’t already have your financial ducks in order and have things high-rate credit card debt, you should take care of that first.

 

If your other debts are stable, it makes sense to pay down your mortgage faster, especially if there are no prepayment penalties or fees attached. Pay an extra check every year and you could shave as much as five years off of your thirty-year mortgage, which will save you a lot on interest and also you peace of mind.

 

Some finance experts have different opinions on this, though. The thought is that there are either better ways to prepay, or better ways to invest that extra money (if you have it).

 

Instead of tying up your extra cash in mortgage payments, some recommend that you save up the extra money and just make one extra payment at the end of the year. This way, you’ll have that cash available for emergencies and other investments during the year. One downside to this strategy is that the longer that you don’t pay down your mortgage, the more interest you’ll be paying throughout the year.

 

Some suggest that you consider whether or not that money is better spent on higher payout investments instead of prepaying your mortgage. If you’ve got a 7% mortgage then it makes sense to refinance or prepay. If you have a 4% mortgage, though, it’s likely that you can do better things with you cash than prepay the mortgage.

 

While there are many ways to accomplish paying your mortgage down faster, the bi-weekly strategy is one of the easiest—especially if you are the type of person who lacks the discipline to use extra money to pay down your mortgage and needs some sort of structure to make it happen.

 

There are also other factors to consider other than the savings. Getting rid of your mortgage sooner has a whole emotional angle in that it can lift the weight of a financial burden off of your shoulders and prepare you to start thinking (if you aren’t already) about focusing all of your energy and money on things like college tuition or retirement.