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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Bi-Monthly Vs Bi-Weekly Mortgage Payments
You have probably heard a lot of people saying that it is a good idea to pay your mortgage twice a month.
So, how exactly do you do that? What does it mean? Especially when you start considering bi-monthly Vs bi-weekly mortgage payments.
In today’s post, we will discuss what are the benefits of making bi-monthly or bi-weekly mortgage payments and their basic comparison.
Does Making Extra Mortgage Payments Affect Credit Score
Let us go and dispel the fact from fiction with your credit score. Does making extra mortgage payments increase your credit score? The answer is No.
The reason being, the FICO and vantage scores are designed to focus on solely whether or not you are making your payments. The lenders are not going to update the credit bureaus all the time.
They are not going to report that you are making your payments every week or every two weeks. They are only going to report whether you did or did not pay your mortgage payments.
So you make more than one mortgage payment every month is not going to boost your credit score. On the other side, if you are making your mortgage payment on time without being late, would always boost your credit score.
Potential Benefits Of Bi-Monthly Vs Bi-Weekly Mortgage Payments
Are You Allowed to Pay Off Your Mortgage Early?
In many cases lender allows you to pay off your mortgage before the loan tenure.
You may want to check your closing disclosure or simply call your lender to verify if you can pay off your mortgage early.
How is Interest being compounded on your loan?
You might want to know how the interest rate is compounded on your loan, i.e. whether it is monthly, daily, or on monthly average balance.
If it is compounded monthly, multiple payments will probably not benefit you.
But if your Interest is compounded daily or on a monthly average balance, making multiple payments might be worth all your efforts.
Difference Between Bi-Monthly Vs Bi-Weekly Mortgage Payments
If you consider making multiple payments each month, it is essential to know the difference between bi-monthly and bi-weekly mortgage payments in effect to save money on your Interest.
Bi-Monthly Mortgage Payments
Bi-monthly mortgage payments mean making two half payments per month, one on the 1st of the month and the other one on the 15th of the month to your mortgage lender.
If we break it down over the course of the year that is twenty-four half-payments or twelve full payments for a year.
You are on time, your mortgage is paid, and everything looks good in case if you are making bi-monthly mortgage payments.
Bi-Weekly Mortgage Payments
In a bi-weekly mortgage payment module, you are making a one-half payment every fourteen days.
Now you must be wondering what is the difference between making two half payments every two weeks and twice a month.
If you are making bi-weekly mortgage payments over the course of the year, you are making a total of twenty-six half payments which means you are making thirteen full payments a year.
That is where the benefit comes to you. The way this breaks down is since there are fifty-two weeks in a year, using a bi-weekly payment method, would result in you making one extra mortgage payment every single year.
Over the years that one additional payment would add up and save you a massive amount of money and potentially help you pay off your mortgage faster.
Potentially because over the course of your loan you might refinance and might reset the payment schedule.
Adding to the bi-weekly module of payment if you are able to squeeze in some extra payment, it would really help you to save a great deal of money and also reduce your loan tenure furthermore.
On average if you pay a hundred dollars extra towards your mortgage every month, you can cut down your 30 years mortgage by up to 6 years approximately.
Conclusion
So the significant difference between bi-monthly Vs bi-weekly mortgage payments is that you make one extra payment every year in case you pay bi-weekly.
Most people are unaware of the bi-weekly mortgage payment option because most lenders or banks don’t advertise it that much.
A smart move is to talk to your lender and ask for this option making sure you get an opportunity to save money and pay off your loan faster.
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