Bi-monthly Mortgage Payments: What You Need to Know

Similar to the way it sounds, a bi-monthly mortgage is paid every two weeks instead of once a month. One-half of the monthly payment is paid during these two payments, so instead of 12 payments per year, you end up making 26 installments per year. At the end of the year, this equates to making one extra mortgage payment per month, which deducts directly from the principal balance of your mortgage.

Is this a good thing, a bad thing or neutral?

The Good, Bad and Ugly of Bi-monthly Payments

Bi-monthly mortgage payments can reduce your principal mortgage balance faster. And, yes, bi-monthly mortgage payments can shorten the term of your loan. Bi-monthly payments can even save you money in interest in the long run. Whether or not this option is good, bad or ugly depends on several factors, but the biggest factor is how your mortgage company handles the payments. Typically, you cannot take upon yourself to set up your own bi-monthly mortgage payment schedule. The mortgage servicing company probably has a bi-monthly payment option, but it’s going to cost you to establish it.

Generally, this fee tends to outweigh the benefit, which means it may not be worth it you’re your company does not charge a pre-payment penalty and allows you to pay every two weeks instead of monthly, then you can take advantage of the benefits of a bi-monthly program you set up for yourself. Another option, if you can afford it, is to place 50% of your mortgage payment into a special bank account each time you get paid. When your mortgage payment is due, use all of the money in the “mortgage bank account” to make a mortgage payment. If you get paid on a weekly basis then this equates to one extra payment a month or 12 extra payments a year.

Before you establish your own bi-monthly mortgage payment program, check with your mortgage lender to see if they offer a bi-monthly payment options and if there are any fees associated with it. If they do not have a program, inquire as to whether or not you can pay twice a month instead of once a month and see if there are any pre-payment fees for reducing your principal mortgage balance early.

Once you have the answers to these questions, you can truly assess if a bi-monthly mortgage payment option is good, bad or ugly for your personal financial situation.