When you purchase a home and secure a mortgage, you may find that your payments are due monthly. This is the default setup, although there is another way that you can opt to make your mortgage payment: bi-weekly payments.
With a traditional mortgage, you make 12 payments a year. By enrolling in a bi-weekly payment plan, you're paying half of your mortgage payment amount once every two weeks instead. Since there are 52 weeks in a year, it works out to you making 26 bi-weekly payments or 13 months of payments. You end up making an extra month's payment, and even though this might not seem like much, over the course of the loan, it has huge effects.
For instance, say you have a 30-year mortgage for $100,000 with an interest rate of 6.5%. During the lifetime of the loan, you will pay $127,544 in interest. Adding that to $100,000 principal means that you will make a total payment of $227,544. If you pay half of the regular monthly mortgage bi-weekly, the interest drops to $97,215, which saves you $30,329.
One aspect to keep in mind is that some lenders will let you convert your traditional mortgage payment plan to a bi-weekly one for a fee. Make sure you read the fine print in the contract to determine if your lender charges a one-time fee or a recurring one.
If you have further questions on how to make bi-weekly payments work for your mortgage, reach out directly to a financial planner or advisor. They can help you figure out how to set up the payment plan if this option works for your current situation.
Sources: Nerdwallet.com, Mortgagecalculator.org, Magnifymoney.com, Goldstarmortgage.com