What is a Bi-weekly Mortgage & Should I Apply for it?


Bi-weekly mortgage payments in a nutshell

A bi-weekly mortgage plan is just another simple way to pay out your mortgage loan, which allows you to make two payments in a month instead of one.

The main difference between mortgage payments and bi-weekly mortgage payments is that instead of making twelve payments a year, you are paying half your monthly amount one time every two weeks. That is thirteen full payments each year. This way, you might be able to save some extra money over time, as interest rates will become lower. The plans are normally set up by your lender or by a designated company.

On a different note, if you feel that your finances are not able to cope with your mortgage loan payments or you have other needs to cover such as debt payments, you can always apply for a guarantor loan. With this kind of loans, you will rely on a friend or family member who will respond upon your payments.

Why should I apply for them?

Most households make twelve payments per year; therefore, if you switch to bi-weekly ones and instead of twelve you are making thirteen, you will pay less total interest while lowering your balance at a quicker pace. Albeit, conditions may depend on the lender/institution that provides you with the service. Below I discuss some insights regarding how bi-weekly mortgage plans might affect credit score and interest rates.

Pros and cons of applying for a bi-weekly mortgage plan

As all finance-related issues, applying this type of finance plan it is not something you should decide from one day to another. Be clear and consistent about the consequences that paying some extra money might cause to your overall finances.

Some benefits of changing to a biweekly mortgage plan are:

  • You will pay for fewer interests.
  • It will help you to build up equity, as you pay extra per year.
  • Bi-weekly mortgage payments allow you to pay your mortgage faster.
  • It is easier to budget, as you always pay the same amount and you do not lose balance on your paychecks.

Do not forget about the cons and risks of bi-weekly mortgage payments entails:

  • Some banks will charge a set-up fee for this mortgage program.
  • You will need to commit to these payments, as the plans you agree with your lender will be permanent.
  • You may be charged maintenance or annual fees for this program.
  • Some financial institutions will apply your mortgage loan payments only after receiving the full payment amount. Therefore, there are no other benefits apart from an extra payment at the end of the year.

Good credit and Interest rates

Bi-weekly payments are organise by your mortgage lender, as he puts you on an automatic withdrawal plan to make sure that you pay your mortgage debts on time. This option might be a good opportunity for those who are late on payments and therefore have a bad credit score, as this procedure allows you to build on some good credit. However, if you are on a tight budget, you may accumulate more debt, so bi-weekly mortgages do not necessarily have to improve your credit rating.

In terms of the different interest rates you will have to deal with, it is not that clear that you will pay fewer rates. This will hugely depends on your mortgage lender, as in many cases, the service that receives your payments twice a month is not the same company that holds your mortgage loan, so all your payments will be stored in an account until the end of the month.

Be careful about the company you use to get into biweekly payment options

On one hand, many mortgage lenders offer a wide range of biweekly payment options. These programs are quite flexible sometimes, allowing you to proceed to those biweekly plans, or if you prefer, you can withdrawal from them and go back to monthly payments if your circumstances change.

On the other hand, problems might start to arise when you recur to a third party service that provides bi-weekly payment options. This is due to the high fees and rates they apply when setting up this service for the first time.

To sum up

It might be worth to apply for a bi-weekly mortgage plan if your overall finances can deal with it. To make sure of the fact that you can pay double each month, you can use a mortgage payment calculator to find out how much you could save approximately. Last but not least, you can always ask a financial counsellor to help you identify the potential benefits or risks from this kind of plans.

Julia Brookes

Finance Consultant at Now Loans