For many new homeowners, the idea of a mortgage can be frightening, mix in the costs associated with being a homeowner and it’s a double-whammy. The idea of paying off a mortgage early may even feel like a dream, but it’s very doable with a little planning!
While there are various strategies to achieve that goal, one option that has gained popularity is making bi-weekly mortgage payments. Let’s explore some of the benefits of bi-weekly mortgage payments, including how they can help save you money and reduce your debt.
1. Accelerated Reduction of Principal
One of the biggest advantages of bi-weekly mortgage payments is the ability to accelerate the reduction of your mortgage principal. By making payments every two weeks instead of monthly, it goes without saying that you end up making an additional payment each year. This extra payment goes directly toward reducing your principal amount, which can have a significant impact on the overall duration of your mortgage.
2. Interest Savings
Reducing your principal amount through bi-weekly payments also means substantial interest savings over the life of your mortgage. With each extra payment, the outstanding balance decreases, resulting in less interest accruing on your loan. Over time, this can (potentially) save you thousands of dollars in interest payments. We ALL know how interest adds up!
3. Shortened Loan Term
Bi-weekly mortgage payments can help you pay off your mortgage faster than the standard monthly payment schedule. By consistently making extra payments each year, you can effectively reduce the loan term. For example, a 30-year mortgage can be shortened to approximately 23 years! (also depending on the specific terms and interest rate). This means you’ll own your home sooner and save money on interest in the long run. Win-win.
4. Improved Cash Flow Management
While bi-weekly mortgage payments may seem like a more significant financial commitment, they can actually improve your cash flow management. By aligning your payments with your paycheck schedule, you ensure that a portion of your income is allocated towards your mortgage regularly. This can help you budget more effectively and reduce the risk of overspending, ultimately leading to better financial stability.
5. Discipline and Financial Accountability
Opting for bi-weekly mortgage payments requires a higher level of financial discipline and accountability. By committing to this payment schedule, you prioritize your mortgage obligations and instill a sense of responsibility towards your long-term financial goals. This increased discipline can extend beyond your mortgage payments and positively impact your overall financial habits.
6. Flexibility and Options
Some lenders may offer flexibility in terms of bi-weekly mortgage payments. You can choose to work with your lender directly or use a third-party service to set up automatic deductions. This allows you to select a bi-weekly payment schedule that aligns with your specific financial situation and budgetary needs.
7. Reduction of Overall Debt
By making extra mortgage payments through a bi-weekly schedule, you effectively reduce your overall debt burden. With a lower mortgage balance, your debt-to-income ratio improves, which can positively impact your credit scores and overall credit. Additionally, having less mortgage debt can free up resources for other financial goals, such as investing, saving for retirement, or funding your children’s education.
It’s a lot to take in and a commitment, but so is homeownership! Bi-weekly mortgage payments offer several advantages to save money and reduce a debt burden. If you can consider exploring this payment option, give me a call and I can help!