Just thinking about looking for a mortgage in an endless sea of options may make your head spin. While not all mortgages are created equal, a bi-weekly mortgage is often overlooked. A bi-weekly mortgage may provide you with the necessary flexibility and financing you need.
Bi-weekly mortgages allow you to make mortgage payments every two weeks, rather than once a month. Each bi-weekly payment is roughly half of a monthly payment, often with no extra interest. Broken down this way, a 30-year mortgage of $300,000 with a fixed interest rate of 5% could result in bi-weekly payments of $805.23, instead of the monthly $1,610.46.
Not every financial institution offers them, so you need to know what to ask for. We've outlined five facts about bi-weekly mortgages to inform your decision.
1. Faster pay-off: Bi-weekly mortgages work because a year contains 52 weeks, which breaks down to a total of 26 payments in a year, or 13 full month payments. This means that you pay an extra month’s payment, in addition to 12 month payment plan. In the long run, paying bi-weekly can help to pay off your mortgage quicker as the thirteenth payment goes towards paying the principal amount.
2. Greater flexibility: Splitting your payment into two, digestible installments might be a more suitable fit for your monthly budget.
3. Cash flow considerations: If you have a very tight budget or debts to pay, a bi-weekly mortgage might not be the most beneficial choice for you. Bi-weekly payments might monopolize extra cash you need mid-month or reduce your slush fund for emergencies.
4. Building discipline: Taking advantage of an extra mortgage payment each year can help you build financial discipline. These healthy habits may extend to other areas of your financial literacy, behaviors, and management.
5. Growing equity: Bi-weekly mortgage payments can also help you build equity in your property. This is the difference between its value and the mortgage balance against it. The quicker you can reduce your mortgage balance, the more equity you will have in your home.
To learn more about bi-weekly mortgages and find out if they are right for you, contact us today!