If you have a 30-year loan and are looking for a way to pay it off in less than 30 years, you might be considering making your payments on a bi-weekly basis instead of monthly. While there are times and reasons when this can be beneficial; however, there are also times when this method doesn't really work out that well. Here are a few things to know about this.
The point of making bi-weekly payments
The reason people recommend making bi-weekly payments is to pay off the principle of a loan faster. The theory is that if you pay half your payment every other week instead of your full payment each week, you will be paying down the principle faster, which leaves you paying less interest on the loan.
Why this doesn't always help
This method can work well if the lender applies the payment every other week, but most lenders do not do this. Most lenders simply hold the half payment until they receive the other half payment, and they then apply the entire thing to your loan. In other words, making the payments in this way is basically the same as making a full monthly payment once each month.
The one benefit this does offer
While this method doesn't always work out like people think, it does still offer one key benefit. If you make your payments bi-weekly, you will be making 26 half payments in all, which amounts to 13 payments. This means you will be making one extra payment per year, and this could help you pay off your loan faster.
A better approach to consider using
Instead of trying out the bi-weekly payment method, there is a better option you might want to consider. The other option involves making a higher payment each month than what you are supposed to. For example, if your normal payment is $1,000 per month, pay $1,100 per month. If you do this, you will essential be paying more than one extra payment each year, but you will be paying off the principle faster, simply because the extra amount will be applied each month instead of once per year.
Buying a house is one of the biggest purchases you may ever make, and you can find ways to pay off your loan faster if you want to. To learn more about this and other types of mortgage services, call a lender today.Share