Bi-weekly mortgage payments
For the most part, borrowers make their mortgage payments on
a monthly basis. There is another option that can shorten the
repayment term: bi-weekly mortgage payments.
The bi-weekly system basically works by taking the monthly mortgage
payment and cutting it in half. In essence, you make one half
of a monthly payment every two weeks. Since months are rarely
precisely four weeks long, that means that over the course of
the year, extra payments are made. As a result, the biweekly system
usually helps borrowers make one extra monthly payment each year,
i.e., 13 instead of 12.
This is an excellent way to prepay your loan. To prepay is to
lessen the principal of your loan before you are required to.
In turn, a dwindling principal lessens the amount of interest
you have to pay. It is an excellent option for people who are
determined to finish paying their mortgage before their term expires.
Of course, biweekly mortgage payments are not the only form of
prepayment available to borrowers. If your finances are not stable,
you might want to choose a less rigid form of prepayment. Usually,
once you declare that you want to go biweekly, it is difficult
to make further changes to your payment schedule. That means that
you are firmly committed to prepaying no matter what the surprises
the future may present.
On the other hand, if you choose to simply prepay whenever you
have extra funds, then you will be able to go back to paying the
minimum with no penalty if need be. Of course, some borrowers
find it difficult to exert the self-discipline necessary for this
kind of voluntary prepayment.