You may wonder whether biweekly payments really save you money on the long run and how do they do that. However, the answer to this question is not a simple one as it depends on each loan contract’s terms and on your repayment capacity. Though mortgage lenders make many claims as to the virtues of biweekly payments, truth is that only under certain circumstances they’ll be to your advantage.
Biweekly payments can accelerate repayment of the loan and thus, let you become debt free sooner. Also since more interests are repaid each month, there are further savings on this category. Nevertheless you should read the fine print of your loan contract carefully as there are some stipulations that eliminate this benefit without you noticing it.
Speeding Up Mortgage Repayment
By making payments once every two weeks you are accelerating the mortgage repayment program. Depending on the amount of the payments you can speed up more or less the repayment process. However, even if each payment is equal to half the regular mortgage payment, you’ll be repaying an additional month each year.
This is due to the fact that with monthly payments you have 12 payments a year which is equivalent to 24 half payments while with biweekly payments you have 26 biweekly payments (a year has 52 weeks) which are equivalent to 13 monthly payments. Thus, even if you don’t pay higher amounts, you’ll get the equivalent to an extra payment spread over the whole year,
Saving Money On Interests?
Biweekly payments also contribute to reducing the amount of money you spend on interests. This is due to the fact that after each payment, the loan’s principal is reduced. And since the interests are calculated over the principal, this reduction contributes to generating fewer interests every month (actually, every two weeks).
However, you need to be very careful and read the loan contract’s fine print thoroughly because some lenders will want to dilute this benefit by computing the payments only on a monthly basis even if your payments are made biweekly. That way, the interest will be calculated just like with regular loans and you won’t benefit from interest payment reductions whatsoever.
Choosing The Lender And Loan Carefully
That’s why we always insist on the fact that the borrower needs to carefully select both the lender and the loan. You need to make sure that you’ve read the whole loan contract carefully and cleared out any doubts that you may have. This will greatly contribute to obtaining advantageous terms on your desired loan.
If you decide to go for biweekly payments, make sure that you’ll be actually taking advantage from such repayment scheme and that your payments are to be computed on a biweekly basis and not on a regular plan. Otherwise, you’ll be best off with a traditional repayment program which has fewer complications. And if you want to become debt-free sooner, you can always destine higher amounts towards the mortgage loan repayment whenever you want on a traditional repayment program.