Most homeowners pay off their mortgage by making monthly mortgage payments. In some cases, homeowners with a bit more financial flexibility will make larger payments than required in order to pay off their loan quicker. However, you may not be aware that you can choose to pay bi-monthly mortgage payments instead of monthly. To determine whether paying off your mortgage by making your mortgage payments twice a month instead of once a month will benefit you, you’ll want to compare the advantages and disadvantages.
The Potential Advantages of Making Bi-Monthly Mortgage Payments
The following are the benefits of making mortgage payments twice a month instead of once a month:
- You can align them with your paycheck – Most people get paid bi-monthly, which means that you can easily align your bi-monthly mortgage payments with your paychecks, potentially making it easier for you to budget.
- You’ll pay off your loan quicker – By paying bi-monthly, you’ll actually end up making more payments over the course of the year than you would if you were making monthly payments. If you do the math, you’ll make 26 bi-monthly payments versus 12 monthly payments, which means that you’ll end up making an extra payment that will go towards your principal. If you keep doing this over the duration of your loan, you’ll end up paying your mortgage off quicker than you would if you paid once a month.
- It won’t affect your monthly budget – You won’t have to make larger payments in order to pay your loan off quicker with bi-monthly payments. Simply divide your normal monthly payment in two.
- You’ll pay less interest – In addition to paying off your loan quicker, the extra payments will go towards your principal, which will help to lower the amount of interest that you’ll end up paying over the course of your loan.
The Potential Disadvantages of Making Bi-Monthly Mortgage Payments
As advantageous as a bi-monthly mortgage payment plan could be, there are a few potential disadvantages that you should look into first. They may include the following:
- There may be a pre-payment penalty – Some mortgages contain pre-payment penalties. If the fees of paying off your mortgage before its end date are more than the interest that you would save, it may not be worth the effort.
- There may be set-up fees – Depending on who your lender is, you may be charged a fee to switch from a monthly mortgage payment plan to a bi-monthly payment plan. In fact, you could be charged multiple fees, including an upfront set-up fee and an annual usage fee.
- You’ll pay more over the year – Even though your monthly budget won’t be affected, you are in essence paying off an extra month by switching to a bi-monthly payment plan. If you suddenly find yourself in a difficult financial situation, you may not be able to switch back to a monthly payment plan. You can’t just switch back and forth, after all.
There are a lot of advantages to switching to a bi-monthly mortgage payment plan. However, it’s important that you look into your mortgage terms and ask your lender about any potential fees. It may not be worth switching to a bi-monthly payment plan if there are substantial fees involved.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.
