If you are a homeowner hoping to save money on your mortgage, you may have considered switching to a weekly or bi-weekly mortgage payment plan as a quick and easy alternative to getting your mortgage refinanced.
While changing your mortgage payment schedule from monthly to more frequent payments has some distinct advantages, will it really help you save money?
Here’s a look at some of the ways a weekly or bi-weekly mortgage payment can save you thousands of dollars over the long term, as we also review some of the misconceptions regarding increasing the frequency of your mortgage payment.
How Do Weekly Mortgage Payments Help You Save Money?
If you are currently paying your mortgage monthly, switching to a weekly payment schedule will help you save money in a very simple way.
With monthly payments, you make 12 payments per year. With a weekly payment schedule, you make one-fourth of your monthly payment 52 times a year, which means you make the equivalent of 13 monthly payments each year, shaving years off your mortgage and saving thousand of dollars in interest.
However, if you are currently paying off your mortgage on a bi-weekly schedule, switching to a weekly payment schedule won’t provide significant savings. The 26 payments per year you make with a bi-weekly schedule still add up to the equivalent of 13 monthly payments, so you won’t pay off your principal significantly faster.
Is it Always a Good Idea to Switch to a Weekly or Bi-Weekly Mortgage Payment Plan?
While a weekly mortgage payment schedule can save you a great deal of money over the long term, there are some situations where it isn’t a great idea to switch to a higher frequency payment plan.
Some lenders only apply the borrower’s payment to principal at the beginning of the month, so no matter how frequently you make payments, your principal won’t be paid any quicker. And other mortgages may penalize you for paying your mortgage more quickly. So, before closing on a mortgage, make sure you understand the conditions that apply to making more frequent payments. And if you already have a mortgage, check with your lender before making weekly or bi-weekly payments, if you have any questions.
If you discover that the terms of your mortgage do not allow for weekly or bi-weekly payments, you may be able to save money by refinancing, and move into a mortgage that allows for extra payments.
But until you can refinance into a new mortgage, you can still save money by depositing your weekly mortgage payment into a bank account. From the account, pay your monthly mortgage and then deposit leftover funds into a savings account. The money in the savings account can then be applied to your mortgage if you refinance, used to payoff your mortgage early, or kept for longer term savings.
Calculate Your Saving if Switching to a Weekly or Bi-Weekly Payment
Here are some tools that can help you determine the benefit of switching from a monthly payment to a weekly or bi-weekly payment.
• Weekly Mortgage Payment Calculator to Compare Mortgage Interest Savings
• Bi-weekly Vs Monthly Loan Calculator
• Bi-Weekly Mortgage Payment Calculator
If you have any questions about making weekly or bi-weekly payments, contact your lender or mortgage broker. A good loan originator will always look out for your best interests, and will show you how to save the most money possible on your mortgage.