Chances are you’ve heard of the option of paying your mortgage biweekly. The option sounds good, but is it really worth your time?
Before you decide on this option with your bank, you need to know a few things. Let’s take a closer look at whether or not you should make biweekly mortgage payments.
How Does the Bank Handle This Type of Loan?
In many cases, when you sign up for a biweekly mortgage, the bank holds your first payment until the second arrives. In other words, you’re still just paying once per month. It really doesn’t make any sense. In other words, unless there are some major benefits tacked onto the loan, such as a lower interest rate, don’t waste your time.
Can I Pay Off My Mortgage Faster on My Own?
YES! You always have the option to pay extra on your mortgage. Doing so helps you tremendously because the extra goes toward your principle rather than the interest. Paying just an extra $100 a month can make a huge difference. You can also choose to pay toward your mortgage each week or every other week. For example, if your mortgage payment is $800 per month, you could pay $250 each week and end up paying $200 extra toward your principle.
Related: 7 Tricks to Pay Off Your Mortgage Early
What Money Goes Toward the Principle?
Anything you pay over your monthly payment can be applied toward the principle. You want to tell the bank that you want the extra to go toward your principle. Make this clear. Be aware though. Just because you make the equivalent of two payments in one month doesn’t mean you’ll have paid next month’s mortgage payment. Many mortgage loans aren’t set up so that you can pay ahead like with a car loan.
Should You Pay Extra?
While mortgage interest can equate to tens of thousands of dollars or more, these rates are usually much, much less than your credit card interest rates. Current mortgage rates at the time of writing this article were currently around 4.5 percent. The average credit card interest rate ranges from 13 to 23-percent.
If you have credit card debt (or any other personal debt), you need to pay this off first before paying extra on your mortgage. You also need to make sure you have a healthy emergency fund in place. It does you no good to pay extra on your mortgage if you lose your job and can’t make the payments while you’re unemployed. However, if you’re debt-free and financially set for emergencies, by all means pay ahead.
Paying extra on your mortgage can get your home paid off faster. However, a biweekly mortgage plan from your bank isn’t as good as it seems. It’s better to pay extra on your own, if you’re in a financially stable place in your life.
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