The age-old rate debate. In this blog post, we talk a bit more about whether variable rate mortgages are better than fixed.
Mortgage Payment Frequency
During our lifetime, we take on new sports and hobbies. As much as we would like to instantly be a pro, that is rarely the case. To get better at any sport or hobby, we must practice. The more frequently we practice, the faster we will learn new skills and progress. We progress at a much faster pace when we increase the number of practices every month and every week. When looking at some of the top athletes in their respective sports, the individuals winning more often and generally those that put in more work. They practice more often and practice difficult situations that will make them better. The less frequent an athlete practices, the longer it will take to learn a new skill.
When you’re approved for a mortgage, you have a choice of a mortgage payment frequency. The more frequent a homeowner makes payments on their mortgage, the faster it will generally be paid off. However, each one serves a purpose and can help a borrower in a different way.
1. Monthly Payments
The first mortgage payment frequency is making a payment once a month. Having a monthly payment on your mortgage is the most common payment frequency. Many people are used to paying rent once a month. Therefore, a monthly mortgage payment will be similar to paying your rent on the first of the month. You typically have a payment due on the first day of every month and that’s it. It is easy to remember. Many lenders will allow the borrower to choose which day they wish to make the payment on. This can help you pick a date that works best with your other bills and income.
2. Semi-Monthly Payments
Semi-monthly mortgage payments are slightly more frequent than monthly payments. You will make your mortgage payments twice a month. They are half the amount a borrower would pay monthly. Semi-monthly payments are made usually on two specific days per month- like the 1st and the 15th. However, these payments will always add up to the same amount as the monthly alternative. So, if the monthly payment is $800, on two days every month the borrower will pay $400. This will give you a slight advantage and opportunity to save money over the course of the mortgage. The increased payment frequency will help you save some money on interest over the term of your loan.
3. Bi-Weekly Payments
Bi-weekly payments are more frequent than semi-monthly and monthly payments. You will make your mortgage payment every two weeks. Borrowers make 26 payments over the year. For normal bi-weekly payments, your monthly mortgage payment is multiplied by 12 and then divided by 26 to get the new payment amount.
You have the option to make accelerated bi-weekly payments too. In this scenario, your monthly payment is divided by two and this is your bi-weekly payment amount. Therefore, you will end up making the equivalent of an extra month of payments each year. Making an extra payment every year helps you pay down the principal faster and will reduce the amount of interest you pay throughout the term of your loan. Paying down the principal faster means that you will also pay off your mortgage faster.
4. Weekly Payments
Weekly payments are similar to bi-weekly payments. You will make your mortgage payment every week on the same day. Borrowers will make 52 payments each year. For standard weekly payments, your monthly amount is multiplied by 12 and then divided by 52 to get your weekly payment.
Similar to accelerated bi-weekly payments, you are able to make accelerated weekly payments. In this scenario, your monthly mortgage payment is divided by 4 and paid each week. Similarly to accelerated bi-weekly payments, this results in an extra month of mortgage payments annually. Therefore, paying down your mortgage faster.
The more frequently we do something, the faster we progress. This could be practicing every day for a sport, or it could be paying off the mortgage. More frequent payments on a mortgage allow borrowers to save more money over the course of their loan by paying down the principal faster. This means that you will save more in interest. Bi-weekly and weekly payments are the most frequent payment options for homeowners and allow them to save more over the lifetime of the loan. Having the option to go accelerated can help you pay off your mortgage sooner and pay less interest.
Different payment frequencies will have a different impact on your mortgage. Most people should take a look at their individual cash flow to decide what is best for them. When you are looking to find out the best payment option for your mortgage, give us a call at Clinton Wilkins Mortgage Team! You can give us a call at 902-482-2770 or get in touch with us here!