What are the pros/cons of a bi-monthly Mortgage?
I understand the pros/cons of a biweekly plan and understand I could do it on my own. My question is, is there a biweekly company that would apply my extra payments on each monthly payment (I will be putting in an extra $200 per payment every 2 weeks) instead of holding this $200 each payment for 6 months until the semiannual addtional payment is made. I want the extra payments applied monthly instead of semiannually. Does such a plan exist?
To my understanding, there is really no such thing as a "bi-weekly mortgage," meaning a mortgage that actually calculates your interest and payments on a bi-weekly basis. Rather, the bi-weekly mortgage companies that promote this type of mortgage repayment plan are actually intermediaries between you and your mortgage company. Rather than making a single payment to your mortgage company each month, these companies allow you to split your mortgage payment, making a half payment every two weeks, while the company holds your funds and makes a regular mortgage payment every month.
Since paying every two weeks means that you are paying more money annually than if you paid once every month (and with the effect of compounding, it rapidly cuts down the principal and consequently the interest and total cost of the mortgage loan), you should build enough money to make one additional mortgage payment per year. Many times, a bi-weekly mortgage payment holds your additional funds throughout the year until it has enough money to make an additional half or full payment to your mortgage company. Generally, these additional payments are paid to your mortgage lender either once annually or once every six months.
As you seem to realize, the fact that these companies hold your additional payments for at least six months means you are not actually paying down your mortgage every two weeks, so the benefit of these programs are much less than if the additional funds were paid to your mortgage company every month.
To my knowledge, there are no bi-weekly mortgage companies that pay the additional funds to the lender on a monthly basis. However, your lender may allow you to pay more than your regular mortgage payment each month, which should benefit you much more than enrolling in a bi-weekly mortgage program. I do know that Wells Fargo has a nice mortgage program where you pay only the interest expense, but then can lump sum in money WHENEVER you want, and your monthly payment re-calculates every month. If you make an additional payment each month, be sure that you mark it as "principal reduction" so that your lender credits your loan properly. You should contact your lender to discuss the impact of paying more than your regular monthly payment, and if your loan includes any pre-payment penalties for paying off your mortgage before the full term of the mortgage has expired. Making an interest reduction payment each month on your own than rather than an annual or bi-annual extra payment, you should pay off your mortgage a few months faster than with a bi-monthly mortgage program.
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Mortgage market: a pulse check
No surprise that mortgage rates fluctuate. If you are thinking about purchasing a home or maybe considering refinancing your current mortgage, then you want to be up to date on mortgage rates.
Mortgage rates October 4, 2023
According to Freddie Mac, the 30-year mortgage rate for the week of October 4, 2023 is 7.49%. This represents a 18 basis points increase from the previous week's rate.
Note: A basis point is equal to one-hundredth of one percent (0.01%). In numerical terms, if the mortgage rate changes by 20 basis points, it means the rate has changed by 0.20%.
According to Freddie Mac, the 15-year mortgage rate for October 4, 2023 is 6.78%. This is a 6 basis points increase from last week’s rates.
What does the mortgage rate mean for you?
Mortgage rates play a vital role in determining your monthly payment. Let's take a look at the avergage interest rates (APR) for October 9, 2023 based on Zillow data for borrowers with a high credit score (680-740) in the United States:
- For a 30-year conventional loan, the interest rate is 7.77%.
- If you opt for a 15-year conventional loan, the interest rate stands at 6.78%.
Using the rates mentioned above, a $279,082 30-year-year mortgage would result in a monthly payment of $2,003. On the other hand, a 15-year mortgage would require a monthly payment of approximately $2,474.
Experience a smooth mortgage process: Shop around and get pre-approved today!
Shopping around for mortgages and getting pre-approved can make your home-buying or refinancing process easier. Ready to take the plunge? Check Out mortgage rates now for the best options available.